Neobanks: The future of banking – or the same product in a new form?

The days of rushing to the bank to transfer money or withdraw money before it closed are long gone. Thanks mainly to the rise of direct-only online and mobile banking, even the most traditional financial institutions have to offer Internet options.

And now, a new generation of so-called neobanks – N26, C24, Tomorrow, Revolut, and Klarna, to name a few – are entering the market, targeting consumers who grew up with the internet and prefer to do all their shopping. fully online financial transactions.

The attraction of neobanks

“The typical customer is a global-minded digital nomad who values ​​convenience,” says Susanne Krehl, who hosts a regular Fintech fan meeting in Berlin. They are drawn to promises of sustainability, simple budget planning, or control of their money on homepages.

“Many customers use fully digital offers because they are curious,” says Lena Luise Justen, former co-founder of Fino, a fintech that provides products to financial service providers.

“They are unhappy with the often partially digitized services of more established banks,” she adds.

And this, even if established banks have not slept in the transition to digitalization: they too offer applications that allow their customers to carry out their banking transactions from their smartphones.

“Neobanks are not a big revolution,” explains Niels Nauhauser, banking specialist at a consumer advisory center in Germany. “At the end of the day, the product – a checking account – is the same.”

Krehl sees neobanks more as “a form of process optimization”.

“They offer the same service, but without the big device behind it,” she says. The checking account is designed to be purely digital, explains Krehl, and therefore is better aligned with the user experience.

Warnings on the use of data

However, consumers need to pay attention not only to the user experience, but also to how their data is used, consumer advocates warn.

Some of the newer financial service providers operate more like an open banking platform, meaning your checking account serves as a database for other providers’ offers and transactions. For example, some neobanks also offer insurance or contract management.

“Account data has always been used for cross-selling,” explains Nauhauser. But now there is a worrying trend that consumers are being followed so much that their data is used to predict or even manipulate their behavior, warns the German consumer advocate.

IT and security researcher Vincent Haupert agrees, saying the digital footprint of new financial applications is much larger than that of established banks.

“User data is collected and used for product analysis, marketing, and most importantly to improve their own algorithms – unfortunately often without the informed permission of those affected,” he said. . – dpa