Neo-banks: The bank in your pocket

Everywhere she goes, Nadja is always online. The 25-year-old has grown up with digital technologies so doing everything on her smartphone goes without saying – even banking. That’s why she has an account with a neo-bank. It’s not just because the account and bank cards are free of charge. It’s also because she can open the account easily and quickly via the app, make payments at any time in the app and keep a constant eye on her account.

Nadja can’t imagine fitting her banking needs into bank opening times. She’d much rather have her questions answered by a chat-bot on her mobile than go and find a bank branch. As a commuter, she also uses her smartphone to find out about market trends affecting her securities or even to buy new equities – transparently, easily and cost-effectively.

Digital banking boom

Neo-banks are booming. This was shown by the Swiss Payment Monitor 2/2024, a study by the Zurich University of Applied Sciences and the University of St. Gallen. Over 1,500 people were surveyed as part of a study on payment behaviour. 38.4 percent indicated that they had already used a banking solution from a neo-bank at least once. At the start of 2021, it was only about one fifth of all respondents.

Neo-banks have also become better known over the years. For about a quarter of neo-bank users, it is their primary payment method or main bank account. However, this figure has decreased. Neo-banks are likely to continue largely complementing individual services in traditional private customer business rather than completely replacing the conventional banking relationship.

Neo-banks are user-friendly and cost-effective

Neo-banks are coming up trumps with highly user-friendly and cost-effective banking solutions. A basic package of an account or a card is usually offered free of charge. Customer needs are focussed on when developing the range of services. This includes making neo-banking services available around the clock and regardless of location.

Services are usually cheaper than those of traditional banks because neo-banks don’t operate any branches and make savings on customer service. For example, questions are answered by chat-bots rather than human customer advisors. Neo-banks also make savings on included services, i.e. usually only a certain number of cash withdrawals are free of charge. Making frequent trips to the cash machine, needing a credit card or more than the standard package will mean you fork out extra. But the good thing is that customers only pay for the services they actually use.

Neo-banks aren’t replacing traditional banks

Despite the advantages of neo-banks, traditional banks haven’t outlived their usefulness just yet. For one thing, the product range from neo-banks doesn’t completely cover that of traditional banks: 3a retirement planning products or retirement funds, loans or mortgages are only sometimes available. Another thing is that there’s no advice on site for neo-bank customers; personal assistance with more complex banking transactions, like investing money or taking out a mortgage just isn’t available. With foreign online banks, there’s also the question of security – how is data protection managed? Is depositor protection in place if the bank goes bankrupt?

However, the success of neo-banks has given the traditional banks a wake-up call. They’ve realised that customers want quick, digital services wherever they are. The established banks are jumping on the bandwagon, grabbing a slice of the action and starting to offer similar digital solutions. To name a few examples, PostFinance and Swissquote are launching the digital finance app Yuh, which is now fully owned by Swissquote. The Lenzburger Hypothekarbank is working with fintech startup Neon, and Bank Cler has been on the market for a while now with its app “Zak”.

The winners here are the customers of the traditional banks. They are benefiting from the technological advances initiated by the neo-banks as well as from the security of an established financial institution. But the trend is far from over. New Swiss and foreign neo-banks will emerge and others will disappear. Ultimately, the customers will decide which will stay and which will go.