Neobanks are pulling out the stops to attract users with flashy features
- Neobanks offer several innovative features that can't be found at incumbent banks.
- These features may be costly, but incumbents should still keep an eye on them as customers could come to expect them.
- Insider Intelligence publishes hundreds of research reports, charts, and forecasts on the Banking industry with the Banking Briefing. You can learn more about subscribing here.
To set themselves apart from incumbents, many neobanks rely on rare features that can be costly to provide—but speak directly to consumer needs that incumbents leave unsatisfied.
As neobanks scale, these features could shift from a "nice-to-have" perk to an expectation in the eyes of their target customers. Insider Intelligence's US Neobank Competitive Edge survey identified seven features with the greatest potential to differentiate neobanks, which together boast above-average demand versus the survey's features overall.
Here are three features that incumbent financial institutions (FIs) should keep an eye on:
- Early wage access for customers who set up direct deposit to get paid early compounds the value of a sticky feature. Several neobanks use this feature as a customer acquisition and retention incentive: Getting customers to set up their direct deposit in the first place is a step toward long-term customer retention and could ultimately allow neobanks to become customers' bank that they use most. The tool might be especially attractive to the nearly 69% of US adults who are living paycheck to paycheck. Early direct deposit is considered "extremely valuable" by 33.6% of respondents to our survey, but that shoots up to 59.6% among neobank account holders.
- Fee-free overdrafts could build loyalty, particularly among cash-strapped consumers. Overdrafts are a huge fee generator for FIs: In 2019, large US banks alone took in $11.68 billion, at an average of $33.47 per overdraft transaction. While they serve as short-term credit ahead of payday for some, overdrafts are also the most complained about bank practice at the Consumer Financial Protection Bureau. Offering a cushion that protects customers from incurring a fee when they overdraw their accounts could be a major attraction at neobanks: 33.2% of overall respondents and 56.2% of neobank account holder respondents consider it "extremely valuable."
- The ability to request a small advance on the next paycheck without interest or a credit check—another form of free short-term loan—also increases stickiness. This feature often requires that customers connect their paycheck direct deposits to the neobank, helping them manage cash flow while increasing their lifetime value as a long-term user. The feature is considered "extremely valuable" by 26.1% of respondents and among the top four US neobanks by assets, it's offered by both Varo and Chime. It's also a customer acquisition and retention incentive in the UK offered by Revolut and Monzo.
Want to read more stories like this one? Here's how you can gain access:
- Join other Insider Intelligence clients who receive this Briefing, along with other Banking forecasts, briefings, charts, and research reports to their inboxes each day. >> Become a Client
- Explore related topics more in depth. >> Browse Our Coverage
Current subscribers can access the entire Insider Intelligence content archive here.
Learn more about the financial services industry.
Source: Read Full Article