Neobanks, or digital-only banks, are a growing challenger to the traditional banking model. Neobank customers can only access their accounts and services online, and while neobanks typically offer their customers higher interest rates on savings accounts and lower fees, there are many reasons why traditional banks and financial institutions can still come out on top.
According to Forbes, in January 2020, just 4% of Gen Zers and Millennials considered a checking account from a challenger bank their primary account. By December 2020, that percentage had grown to 15%, and Chime, the largest neobank, ranked 5th among all institutions in terms of size. This growth is likely to continue, with Grand View Research forecasting in its 2022 paper that the global neobanking market will expand by a CAGR (compounded annual growth rate) of 53.4% from 2022 to 2030.
How are traditional banks competing with neobanks?
While fintech and neobanks are changing the way customers spend, save, and invest, traditional banks still hold the advantage of trust. People are cautious about changing their habits when it comes to money, especially when that change involves going entirely digital. Capgemini’s World FinTech Report 2021 states that “While consumers increasingly accept FinTechs, they continue to trust traditional banks, and 68% say they would try a digital-only offering operated by their primary bank.”
Even with banks and organizations partnering with neobanks to launch platforms that provide better customer experience and enhanced account safety, the 2021 Federal Reserve report found that 13% of U.S. adults were underbanked, meaning they have a bank account but are more likely to rely on alternative financial services like money orders, check-cashing services, and payday loans. Neobanks provide a place for people to put their money and offer educational services, but how can they serve those who transact in cash?
Servicing the Underbanked
When it comes to the underbanked population, cash is more likely to be used for a variety of reasons, including a lack of access to banking services and a general distrust of digital-only banking. According to Javelin Strategy and Research, cash usage remained at 78% throughout 2020 among underbanked Americans.
Because they don’t have physical branch locations, neobanks are difficult for customers who prefer cash or are underbanked. For customers that use a neobank, depositing cash can be a clunky process that involves visiting a retail store and handing your cash over to a cashier. Neobanks also typically use a third party to transfer the funds, as well as often requiring a deposit fee or placing a limit on how often or how much cash customers can deposit. Traditional banks and financial institutions are better equipped to service this population because of their physical presence and the human services they can provide to help with financial needs and in-branch cash and coin services.
Bridging the Gap
Because customers who transact in cash tend to accumulate more coins, the ability to convert coin into physical cash or digital currency is even more important. In-branch coin counting services play a key role in fulfilling this need. For example, our fully managed coin programs allow customers to convert their coins into cash or deposit them directly into their bank accounts.
In an increasingly digital world, it is more important than ever to provide solutions for the underbanked community who may have a harder time taking advantage of modern conveniences that come with online banking. By offering more options for those who are underbanked and providing more personalized levels of care to customers, traditional banking institutions are already set up to better serve those who don’t have access to or prefer not to join digital-only banking. By providing services that bridge the gap between physical and digital banking, banks and credit unions are able to stay competitive and service an already underserved population. For more financial news and insights, follow Coinstar on LinkedIn.