Fintech and Big Banks Are Drifting Apart

By Abay Serkebayev, Chief Product Officer at CFPS.

Mutual understanding between big banks and neobanks doesn’t seem to be growing. Quite the opposite, their relationship is rapidly deteriorating. This creates major problems for both parties.

Neobanks have become direct competitors to commercial banks. This is especially noticeable in the retail industry. Neobanks offer more adaptive customer service, surpassing the one provided by classic banks in rate and quality. Unfortunately, this trend confuses users rather than encourages them to embrace new technology.

Same but different?

difference banks and neobanks
Photo by Markus Spiske on

Let’s take a closer look at the differences.

Some of the benefits offered by non-banks are remote account opening, absence of account fees and minimum balance requirements, multiple free checking accounts, physical and virtual debit cards. Others include secure role-based logins for multiple team members, direct integrations with accounting software like QuickBooks Online and Xero, detailed transaction information, advanced automated accounts payable solutions, mobile banking, and the large ATM network.

What do both traditional banks and neobanks offer to their customers? Payments and deposits using the ACH network, transfers and checks, and FDIC insurance.

Commercial banks surpass non-banks only in cash deposits and physical branches. However, the latter provide remote customer service, credit card issuance and insurance, thus saving a lot of time for their customers.

Customers are used to coming to a bank branch in person, taking a receipt and waiting in line for a free window. However, the customer service paradigm has completely changed. Today all you need to conduct a transaction or use any other bank service is a connection to the Internet. Many customers have already embraced this opportunity, but they still don’t really understand the difference between a traditional bank and a neobank.

Neobanking is a relatively new sector and therefore involves certain risks. However, commercial banks do have similar risks, for example, in terms of security. For some reason, customers do not have a clear understanding of this, so they still mistrust banking apps.

A strong bond

bond banks and neobanks
Photo by Pixabay on

Despite the competition, traditional banks and neobanks have a strong relationship.

Neobanks build their workflow using the experience of classic banks. For example, the logistics of card service centers and retail are very similar. Also, neobanks actively poach top employees from common banks and apply their expertise to develop hi-tech banking solutions.

Another area where neobanks and classic banks come in touch is licensing. The regulatory bodies set identical requirements for cash management and PCI DSS for both. However, those are all points of contact I can highlight.

It is also worthy of note that most non-banks are considered technically inferior due to limited banking licenses. To solve this problem, neobanks increasingly enter into partnership with BaaS providers. One recent example is the cooperation between Relay and Evolve Bank & Trust, allowing each FDIC account to be insured for up to $250,000.

There’s hope

I am sure that close cooperation between neobanks and traditional banks is possible in the near future. When exactly? Well, I believe it will happen right at the moment when commercial banks follow the path of progress and introduce advanced technology. Those who are able to survive the transformation process will be on a par with neobanks. This will create a fundamentally new industry and blur the differences between common banks and neobanks. They will bear the same name: banks.

However, cooperation can be established right now. For example, traditional banks can team up with the licensed neobanks. Nevertheless, there are a lot of nuances that should be taken into consideration. Think, for instance, of Monzo Bank that has become one of the industry leaders in getting approved by regulators, but never obtained a license in the US. As a result, the bank made a decision to refocus on the UK market and launch Monzo UK. However, Monzo Bank does not abandon its plans to operate in the US.

purple and blue abstract painting
Photo by Anni Roenkae on

Many of Monzo’s largest US counterparts have been able to apply themselves without having to go through this time-consuming and expensive process. For example, Chime that has been recently valued at $25 billion, managed to refocus successfully.

The US has higher card interchange fees than the UK, which is beneficial for fully licensed partner banks only. After the failed licensing attempt, Monzo said it will now “build and expand its early-stage product offering in the US through existing partners.” The company is currently running a pilot program with several thousand customers through the partnership with Ohio-based Sutton Bank.

A role to play for authorities

I believe regulators should take the lead on establishing communication between banks and neobanks. Government agencies do not pay proper attention to this area. I see this as the key reason for the disconnection. Furthermore, there is no platform where parties could exchange their opinions. I think the development of cooperation between traditional banks and neobanks is essential, and the regulators should undertake this mission. I suggest there should be some government body created to deal with this issue. The authorities are equally interested in common banks and neobanks.

Another good idea is to arrange conferences, where all market players could communicate with each other, as well as propose legislative changes and improvement of existing finance laws.

I also hope the regulators will give a helping hand to neobanks. The establishment of credit lines as part of bank development could strengthen cooperation.

About the author

Abay Serkebayev has worked in the product management and fintech industries for over 10 years. He graduated with an Executive MBA degree from London Business School, which has helped him shape and promote a vision of how to provide the market with simple and straightforward solutions that can really work for people to improve their financial future.

Abay is a dynamic, result-oriented leader in evaluation, sourcing, project development for startups, medium-sized companies and large corporations. He has extensive experience in finance and technology. Managed successful cross-selling of products, working closely with various partners around the world. Abay has impressively implemented marketing strategies in large corporations such as ABN-AMRO and Orix Corporation.