The magic of startups is concluded in two words: innovations and convenience. New firms that have to compete with giants existing for dozens of years are looking for ways to engage customers effectively. They constantly study the market rivals’ vulnerabilities to become better. Particularly, this competition led to the rise of mobile-only banks, branchless banks or challenger banks – ones that deliver their services via apps only.
To be precise, the popularity of these financial firms isn’t insane. In the UK alone, only 9% of citizens had mobile-only bank accounts as of October 2019. 16% more are going to open one within five years. In the world, the adoption rates are similar but the global digital interest is much wider. According to the 2017 PwC study, almost half of the respondents were focused on digital connection with banks outpacing adepts of human and omnichannel interactions.
So, are branchless banks really that innovative? Should your company invest in these solutions? How they can help customers and businesses? Let’s find out!
Mobile-Only Banks Basics
Put simply, a mobile-only bank is a company that works digitally only. It doesn’t have physical branches but opts for app-based interaction instead. Some banks offer phone support while others have only chat-based help centers. As a rule, digital-only banks focus on extreme simplicity, polished UI/UX, great convenience, and profitable rates.
While the world calls these FinTech startups differently, the mentioned names are the most popular. All of them should be clear but challenger banks may sound a bit confusing. Actually, these are small retail banks that originated in the UK that have to compete with large opponents from the local Big Four. Challengers opt for online-only tech, as a rule, too.
To understand are online solutions worth investments, we should explore their functions and differences. Of course, traditional banks have mobile applications, too. There are even online services available from your desktop. But they don’t provide the same interaction level as branchless startups just because customers can choose how to get services or contact a bank. And that’s the first key difference – mobile-only banks exist in your smartphone/tablet.
Here are other major features of digital banks:
- A bit limited products. Because of the innovative nature and short history, branchless companies just can’t provide the same range of services as other banks. Often, they lack loans, investments, etc. But it’s only a matter of time.
- Low rates and costs. Without extra expenses on clerks and branches, startups deliver the best possible offers. For example, they may feature zero-fee online payments, deposits, and even withdrawals in any ATM.
- Partnerships with parental banks. This point differs from country to country. As a rule, mobile-only banks build their own ecosystem with unique features and offers. However, they can cooperate with larger traditional companies to get liquidity.
- Secure services. So far as digital-only banking firms can focus on only one channel, they dedicate the full power of security departments to make it reliable. Biometrics ID, card lock/unlock features, 24/7 live support, location-based protection, you name it.
- Various non-banking tricks. Often, it’s not enough to deliver a polished app with low rates. Target customers from Gen Y and Z love these small tasty things such as free stickers with cats, in-app achievement systems, and other gamification elements.
As branchless financial corporations save a lot on real-world operations, they have more resources. Simultaneously, they try to outperform larger competitors. That’s why customers often can get a range of profitable and simply convenient services such as:
- 24/7 support in the app, messengers, and by phone.
- Bill splitting options.
- Cashback services for various categories.
- Custom credit limits with a long grace period.
- Deposits with a high percentage rate.
- Free money transfers, payments, and withdrawals.
- Instant card freezing in case of loss or theft.
- Regular reports on expenses/income.
- Spending forecasts based on user activity.
- Spending notifications in real-time.
Overall, digital banks exist thanks to the huge audience they are engaging, relatively high fees and rates on using credit funds, and attractive deposits. They get rid of numerous redundant costs like offices so customers can get way better offerings.
With all these cool things, here’s the question: how safe are mobile-only banks? A lot of clients are afraid of phone hacking. Some customers just know that they can lose a smartphone with all the info in it. Especially, it’s typical for older generations. To find a secure bank, you should remember about two main aspects: authentication and licensing.
The first one stands for safe usage of the banking app that should be prone to fraudulent activity. Ideally, you should look for banks that support several authorization methods, including traditional PINs, fingerprints, facial or voice recognition, and even iris scanning. Banks may offer dynamic CVV2, disabled contactless payments and/or magnetic tape payments, etc.
The second point is all about cooperation between startups, larger banks, and governments. For example, British digital banks are often licensed by FCA and participate in FSCS that protects the users’ money. In Australia, local APRA also licenses such banks. If your country doesn’t have specific regulations, it’s better to look at the experience and authority of the parent banks.
The Most Famous Challenger Banks
In the last small section, we want to share a few examples of mobile-only FinTech groups. Explore their sites and check apps to get how these firms work:
- Atom, the UK – for everyday spenders.
- Monese, the UK – for new bank users.
- Monobank, Ukraine – for everyday spenders.
- Monzo, the UK – for travelers and spending trackers.
- N26, Germany – for spending trackers.
- Revolut, the UK – for travelers.
- Starling Bank, the UK – for credit takers and travelers.
- Tandem, the UK – for new bank clients and cashback lovers.
Investing in Mobile Banks
Well, so what about the initial question? Is it a good idea to invest in the branchless startup or even to opt for your own banking app development? Most likely, you’ve already answered this question. If no, we can repeat a few of the most important insights.
First and foremost, mobile-only banks work fully according to their name. It means that customers can interact with these companies through applications only. Sometimes, teams also offer support in popular messengers like Telegram or even by phone but it’s a rare service. Thus, if your target audience prefers face-to-face interactions, it’s not your story.
Secondly, digital services are extremely convenient. As long as branchless banks don’t have to care about other delivery options, they focus on one tool fully. As a rule, apps become perfectly smooth, convenient, and secure as a result. Banks also decrease rates but often struggle to provide various products.
At the end of the day, mobile-only banks are worth investments. It seems that they will conquer the market with the rise of millennials and Gen Z members who slowly exceed the number of Gen Xers and Baby Boomers. However, today, phygital approach is still the most viable as it combines digital services and physical interaction.