Do you know of the digital natives in the banking industry? The online only banks that do not have any physical branches! Yes, there are such banks. Banks like Simple, Moven, GoBank, and Fidor Bank are attempting to disrupt the banking industry and are vying for the position of digital natives of the banking industry. When we mention this, people wonder how this is possible. Many of these banks have established a partnership with a larger or a parent bank to manage all the banking operations and focus primarily on providing a niche customer experience. They own product management and the customer channels and leave the backend operations to other banks.
These banks are re-defining banking with a singular focus on the customers banking experience. Simple is known for its focus on simplifying financial planning and management, no-frills added fees and giving terms and conditions in plain English. Moven, founded by the author of the popular book Bank 2.0 has its focus on guiding customers on better money management. It helps customers track their expenses, provides real time feedback on purchases, and also encourages budgeting and monitoring. GoBank allows users to choose their fees and makes revenue from merchants for debit card transactions. The Germany based Fidor Bank has its focus on community – that the bank and its customers are a community. Unlike others in this group, Fidor has a banking license. An interesting feature is that Fidor’s interest rates for overdrafts are based on the number of ‘like’ clicks on Facebook.
The business model of these new age banks are different from the traditional players in a number of ways.
- Customer engagement and banking operations are getting split, leading to value chain disaggregation. These banks predominantly provide checking accounts in partnership with other government regulated banks. The funds are held by the partner banks. In some cases, these are subsidiary of a larger bank.
- The new age banks see financial education and Personal Finance Management (PFM) as core activities of a bank and a main reason for customers to bank with them. The PFM tools are integrated into the banking screens and dashboards. They are not isolated tools as in the traditional banks.
- The digital only banks are trying to build a business model around savings of their customers and interchange fees. They encourage customers to save more, which leads to revenue for the bank from the interest of the customers deposits.
- Partnerships with third party players helps them to bring out more products faster and cheaper. For example, partnerships to provide ATM access and foreign exchange services.
- The digital banks are driven by a technology mind set. IT is considered not just as an important division. The banks staffing plan includes experts in user experience design, IT engineers, and experienced banking professionals. IT and business are often co-located leading to better collaboration.
Innovation is a key differentiator for these banks. The small size, close collaboration between IT and business, and their primary focus on providing a new banking experience for their customers enables them to sustain their innovativeness. The high positive ratings and feedback from their early customers has given a fillip to these banks. These digital banks seem to have ‘fans’ and not ‘customers’! Only time can tell how long they can hold on this early success and cause a disruption in the banking industry. In a way, BBVA’s acquisition of Simple gives an indication of the direction this disruption will take.