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Investment and wealth services in the age of neobanks part I. – The presence of neobanks

Kattintson ide a magyar verzióért.

Differentiating strategy, flexibility, adaptive mindset, modern technologies… Neobanks 

In this article, we will briefly summarise the presence of neobanks in the field of wealth & investment services, so that in the next parts of this new series we can delve into the impact that neobanks have had and continue to have on the investment services market. 

Neobank in short: a type of bank that offers its services exclusively through digital channels. These banks do not operate physical branches or legacy back-end systems, they instead use digital platforms like web or mobile applications to reach and service their customers. 

Neobanks undoubtedly disrupted the banking segment with their fully digital and automated operating model that forgoes a physical branch network, offers a simple, modern, and low-cost product and service portfolio, or fills specific niches in the financial industry by solving problems that traditional market players are simply unable to. This form of modern banking was pioneered in Europe this last decade and the rest of the world closely followed. Today, the number of operating neobanks is close to 300, boasting an estimated 39 million users globally.  

If we look at their product strategy, they seem to employ two approaches: they either offer a wide range of banking services (payment, transfer, loan, savings and even wealth management), trying to compete directly with incumbents, albeit most offerings are still limited compared to established players, while others cater to niche segments, targeting a specific group of customers with a much more specialised and personalised service that incumbents simply do not provide. 

Conquering the entire financial sector, an increasing number of neobanks are focusing
exclusively on investment and asset management. Some of them focus solely on remote investment services. These companies operate online, real-time self-directed and easy-to-use trading platforms with a short online onboarding process. Their customers can make their transactions based on their own choices, at significantly lower fees than through traditional channels. For instance, Robinhood (USA) offers a commission-free investing and trading app which currently has 13 million active users worldwide. It is also worth mentioning eToro, which has an office in the EU, provides a social trading platform and has more than 13 million registered accounts. Stash (USA) specifically focuses on micro investors and quickly reached more than 5 million people around the world. And these are only some of the most well-known players.  

Going one step further, we have been seeing an increase in the number of WealthTech companies as of late, who focus on wealth management services and target wealthy investors specifically. Wealthfront, which had $21 billion AUM across 400,000 accounts in 2019 for example provides wealth planning and a customisable portfolio service supported by a robo-advisory solution. Betterment offers automatic rebalancing, tax-loss harvesting and personalised investment advice. In these cases, investment advice and portfolio management take place entirely online, where computer algorithms optimise the client’s investments. 

Although neobanks initially focused on niche segments and general banking services, they are now increasingly expanding their services into investment areas. The well-known Revolut’s customers, beyond the usual offering of general banking services, are now offered various investment products as well. Monzo offers a selection of savings plans with varying interest rates. Swissquote allows customers to open a private trading account online to access traditional stocks, forex and crypto-assets, as well as benefit from robo-advisory services. 

It is highly important to note that digitalisation, pioneered by neobanks in these sectors, made a huge impact on the barriers of entry. It increasingly lowered the stage of the entry-level, making general trading and even specialised investment services available to a wide range of customers 

But behind the glamour, all types of neobanks face increasing internal and external pressure, that forces them to answer the questions: Will they achieve profitability? If so, when and how? Find out in the next instalment of our insightful series.

 

Sources:

https://internationalbanker.com/banking/does-the-future-of-banking-lie-in-the-hands-of-neobanks/

http://extonconsulting.com/wp-content/uploads/2021/01/Report-Neobanks-2021.pdf

https://www.businessinsider.com/global-neobanks-report

https://www.accenture.com/us-en/industries/banking-index

https://www.statista.com/statistics/1126745/monthly-number-neobank-app-downloads-worldwide-forecast/

https://gomedici.com/neobanking-2-0-global-deep-dive-2020-report-by-medici

https://sdk.finance/top-core-banking-software-list/

https://fincog.nl/blog/15/the-profitability-challenge-for-challenger-banks

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-dna-of-digital-challenger-banks.pdf

https://www.paconsulting.com/insights/what-are-neobanks-and-how-are-they-changing-financial-services/

https://www.betterment.com/

https://www.wealthfront.com/

https://www.etoro.com/

https://robinhood.com/us/en/

https://www.wup.digital/blog/challenger-neobank-strategy/

https://www.accenture.com/_acnmedia/PDF-147/Accenture-Consumer-Study-Banking-ASG.pdf

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