The world of banking has been radically transformed over the past couple of years. Traditional banks have been challenged by the rise of neobanks and embedded finance, two new technologies that are shaking up the banking sector. Neobanks provide online-only services such as saving and investment accounts, while embedded finance integrates financial services into everyday products like shopping apps or ride-hailing platforms. Both these technologies offer customers an alternative to traditional banking models and are rising in popularity due to their convenience and ease of use.
In this blog post, we will explore how traditional banks can compete with these new challengers by leveraging their strengths in order to remain competitive in today’s increasingly digital landscape and how these new technologies are defining the future of global finance as we know it.
What Are Neobanks?
Simply put, neobanks are entities which operate and offer banking services solely online, and they mostly do not have any physical branches. Over the last couple of years, neobanks are rapidly gaining traction in the banking sector, as they offer customers advantages that traditional banks cannot match.
Neobanks provide a more convenient and user-friendly experience than traditional banks, with digital-only services such as savings and investment accounts and updated technology for easy transfers and payments. Additionally, neobanks provide features such as round-up savings and interest rates that are often more competitive than traditional banks. This makes them attractive to customers who want a digital banking experience without the hassle of a physical branch.
Neobanks offer a number of advantages over traditional banks that make them attractive to modern consumers. One of the most appealing features is the ease and convenience associated with managing finances digitally. Neobanks make it easy for customers to transfer money, view balances, and track spending without having to visit a physical branch. This makes neobanks particularly useful for millennial consumers who frequent between two or three services at most and thus prefer the light-touch financial offering over the more complex traditional banks.
What Is Embedded Finance?
Another new offering on the block is embedded finance, which refers to the integration of financial services into everyday products and apps. With embedded finance, customers can seamlessly bank on the platform they most frequent rather than depending on a traditional financing platform. As a result of this, many non-financial brands are now starting to offer financial services within their platforms to further delight their customers. By directly integrating financial services into traditional non-financial platforms, customers no longer need to use multiple services to manage their money, making the process much simpler and more convenient for them. The best part, non-financial brands do not need any licenses of their own to offer financial services on their platform, as they can simply lease it from an embedded finance provider.
Changing Roles in Global Finance
The introduction of neobanks and embedded finance has drastically changed the roles of traditional banks in global finance. With these new technologies, customers have been given unprecedented access to banking services anytime and anywhere. This shift has caused traditional banks to rethink their strategies in order to remain competitive and relevant in today’s digital landscape.
In recent years, traditional banks have seen their roles in global finance shift from client-facing to back-end services. For instance, there was a time when traditional banks were at the forefront of client services; however, with the emergence of new offerings, they have transformed themselves to become facilitators of this ecosystem, where they provide the underlying infrastructure. Key components of the ecosystem, right from licenses and compliance standards to reserving customer deposits, still lie with traditional banks, making them a crucial component of the embedded finance ecosystem.
As a result, they are now focusing on leveraging their strengths, such as compliance and security, to stay ahead of the competition.
The Takeaway – How Traditional Banks Are Reinventing Themselves
Over the last couple of years, a growing number of traditional banks are now looking for ways to partner with or even acquire neobanks or embedded finance providers so that they can provide enhanced financial products while keeping up with technology trends.
This changing dynamics of how traditional banks operate is a clear indication that the future of finance as we know it is changing fast.
If today’s stakeholders want to compete and stay relevant in the future, they need to first identify their place in this rapidly evolving ecosystem and then strengthen the same either by offering new technologies themselves or by partnering with providers who do, because the future of global finance will surely be embedded.
Thinking of empowering your B2B customers with an embedded finance experience? Get in touch with us today to learn how we can help.
