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How Neobanks are Redefining “Communities” for Banking in the Digital Economy

Challenger banks or neobanks have gained rapid adoption due to their ability to meet customers in the channel of their choice

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  • Written by  John Waupsh, CEO of Nerve
How Neobanks are Redefining “Communities” for Banking in the Digital Economy

In recent years, challenger banks or neobanks have gained rapid adoption due to their ability to meet customers in the channel of their choice, digital. When the first neobanks entered the market, their appeal was providing a faster, more convenient banking experience to customers.

Now, neobanks are taking a personalized approach to financial services as more challenger banks enter the market and traditional banks accelerate their digital transformation plans. Traditionally, the term “community banking” refers to locally operated banks that serve customers in their geographic area.

Today, neobanks are bringing new meaning to the term by defining their communities through the shared needs and lifestyles of a specific group of banking customers. Furthermore, many of these communities require banking services that differ from the average customer or have felt underserved by traditional banks and challenger banks.

For example, a Bankrate survey found that Black and Hispanic respondents pay twice as much in checking account fees as Caucasian respondents. Traditional banks tend to overlook the challenges these groups of customers face in the financial industry and national challenger banks have grown too large to accommodate their needs. Without the restraints of geography, neobanks can expand their reach and solve problems for specific groups of people.

Boost Engagement with Defined Communities

When the first neobanks entered the market, their strategy focused on developing apps for a general retail customer base, appealing to anyone who preferred digital banking services. The second wave of neobanks have focused target audiences with banking services built to meet their specific needs. In addition to offering the standard features of a digital bank such as mobile and online services, neobanks are creating products to address the unique needs and challenges of their customers.

Furthermore, challengers increase retention within their community by launching hyper-personalized products. Despite the increasing need for personalized banking services, only 27% of customers think the financial industry is fully customer-centric.

Additionally, 20% of customers are willing to pay a 20% premium for personalized banking services, creating a significant opportunity for neobanks to excel in an area that has been neglected by traditional banks and other challenger banks. Often, the founders of these niche neobanks identify within their chosen demographic, enabling them to launch services that truly cater to the unique needs of their customers. By creating hyper-personalized products, neobank founders can demonstrate their understanding of their communities, which will ultimately increase customer loyalty.

There is a tremendous opportunity for neobanks to dive deeper and address the needs of underserved communities. In today’s digital economy, communities are just as likely to define themselves by affinity as by geography and a shared need.

For example, artists and content creators make up a community that spans across the country. Regardless of whether a creator is in Nashville, New York or a small college town in the Midwest, they have specific and shared financial challenges and needs.

They need a bank that can help them navigate fluctuating and inconsistent levels of income, can help manage multiple income streams from streaming sources, and can offer capital to create new content. Neobanks understand they should not define their customer base by geographic location, but rather the shared experiences and goals that bond their customers together.

As the neobank market continues to expand, digital banking is no longer considered a competitive differentiator. By overcoming geographic limitations, neobanks can increase their visibility in an increasingly growing market and advance financial inclusion.

Author: John Waupsh, CEO of Nerve

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