Neobanks make inroads in Europe’s open data world but incumbents fight back

  • By Christine St Anne

Neobanks with digital, cloud-native platforms have taken customer share from traditional banks by adopting digital-first strategies but traditional banks are fighting back.

This is the assessment of a report by global software business Temenos which included a survey of 400 global banking executives about the challenges retail banks expect to face now and in 2020 as well as the strategies they are deploying in response.

The survey found that Monzo has secured “huge growth” by targeting millennial customers. As a result, the neobank has been labelled ‘our bank’ by this age group, “illustrating the success of this digital-first approach”.

In September, Monzo announced that signed 20,000 new customers a week - 80 per cent per cent of them through word of mouth - and accounts for 15 per cent of all new current account openings in the UK.

On Tuesday, Australian neobank Volt Bank become the first challenger bank to receive a full bank licence. The move is anticipated to signal greater competition with the big banks.

Australian neobank Xinja is hoping for a full bank licence in 2019 and its CEO Eric Wilson said that he “expects the big banks to be looking over their shoulders with a bit of concern”.

The bank of ‘You’

While Europe has already moved to an open data framework with a number of neobanks already established, the Temenos report also found that traditional banks are now starting to respond.

The report found that 51 per cent of European banks are focusing on rapidly bringing new products to market with greater ‘personalisation’ as they create micro-banks that sit in customers pockets, powered by apps and acting as a hub for a wide range of financial services.

 To make this happen, the report noted that banks are opening previously closed back offices via APIs to allow product developers to rapidly create new services “with ‘Code in the Morning, Consume in the Afternoon’ product development now demanded by banks who realise that traditional legacy technology stacks are leaving them vulnerable to losing customers to neo banks and disruptive start-ups”.

“The trend is growing in momentum and having huge implications,” Temenos global business director Mark Gunning said.

“Creating the bank of ‘you’ is now an imperative for global banks which are embarking on an arms race using cloud technology to create micro banking tailored to the demands of different age groups, wealth and income levels, and geographic locations,” Gunning said.

“This is creating a future where the bank chooses you: developing services precisely tailored to lifestyle and life needs– with real-time payment and transaction apps.”