As consumer demands started shifting, the monolithic older banks started losing their brand loyalty. The same happened to the big computer companies in the 1980s and 1990s when Apple came along and wowed their customers. Today, Apple has near full-market penetration with a range of products in the developed markets, because consumers just love the brand and all its products. 

One would think the enormous digital migration by millions of people during the pandemic, coupled with a growing dissatisfaction with the big banks, would inspire all the Millennials and Gen Zs to migrate to neobanks. But this is not happening in significant numbers, and many neobanks around the world are in trouble. 

I believe there are a few reasons this is happening. As I unpack the reasons, you will notice a golden thread: it all comes down to a failure to create the meaningful experiences that customers desire and win brands their loyalty. 

Most neobanks are one-trick ponies 

Most neobanks in Africa, the United States and Europe typically have quite standard or narrow customer offerings, which makes it difficult for them to attract masses of customers. 

In Europe, it appears that many of the neobanks have failed to take off as a trend because they don’t offer the array of services that the traditional banks and credit institutions do – they don’t offer car loans, home loans, mutual funds, fixed-rate deposits, retirement plans and insurance add-ons. 

It’s for this reason, and a general lack of trust, that most neobank customers don’t want to deposit their full salaries into these accounts.

Neobank customers often keep just a portion of their money with these digital banks for specific purposes or to access particular perks. 

The crux of the problem is that most neobanks are fintechs with general purpose digital retail bank offerings. They don’t have additional revenue streams – and therein lies the rub. 

Many neobanks have tried to overcome the problem by positioning themselves as luxury or premium brands, but brand positioning does not solve the service offering problem. It only makes savvy young consumers more sceptical. 

Most neobanks are not niche enough

Neobanks often miss out on niche marketing opportunities, because very few of them have those highly creative and cool niche offerings that community fintechs or brands with tailored financial offerings do. 

Laser-targeted offerings can make specific kinds of customers – from subcultures to professions to differently abled people – feel understood and supported. Fintechs, or brands that act like fintechs by harnessing the power of embedded finance, can do really thoughtful things for their customers. 

Doing what’s best for the customer has been my obsession for the past 20 years. My last start-up, kin.me, helped friends to manage shared expenses. Before that, 22seven helped people manage their money better, and my earlier start-up, digital bank 20twenty, was beloved by customers for giving them great digital customer experiences 20 years ago, before digital-only banks really existed. 

Most of my favourite fintechs offer specialised financial services to niche audiences that make people’s lives easier and more fun. 

Neobanks need to start thinking about how they can solve everyday problems for their customers in useful, unexpected and niche ways. 

Everything is possible today. 

We have all the tools we need to create amazing customer experiences: open API banking, AI and machine learning, apps, UX/UI design, social media tools and more. This is why I suspect Discovery’s behaviour and rewards-based banking will work. They are trying to tap into the needs of the customer.

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Venture capitalists are losing interest in neobanks

Around the world, well-known neobanks that were once the darlings of the venture capitalists (VCs) are now starting to run out of funding. Many had to put their expansion plans on hold because they are finding it hard to raise capital. It appears as though neobanks are no longer the flavour of the month. This is creating a vicious cycle of lack of funding leading to lack of innovation and shrinking marketing budgets. 

Even as the big banks are losing brand loyalty, mega fintechs like PayPal and big tech companies that are venturing into payments and banking services, like Applepay, are gaining more popularity. These companies are already profitable and still agile, which means they can keep innovating more regularly than the neobanks can. 

Customers are fickle and spoilt for choice – they simply delete the apps they don’t use. VCs don’t want to fund businesses that don’t have great, evolving customer service offerings and big acquisition growth. 

Unless the neobanks can come up with ways to stay funded and remain relevant, their days will be numbered. 

The innovator’s dilemma

One of my favourite books from years ago, The Innovator’s Dilemma, talks about why it is so hard for large companies to innovate. The bigger they are, the more they need to focus on rules and processes, risk management and maintenance of systems. Even those that have established incubators to externalise their innovation, have not always been successful in bringing it in-house. 

The biggest retail banks might have the deepest pockets, but their corporate mindset and culture hold them back from truly embracing agile innovation in new ways to create frictionless and seamless customer experiences. 

So, who’s going to win the financial services innovation game? I think the brands that are obsessed with customer experience, and that are embracing embedded finance as a tool to build amazing customer experiences, will win. Today that’s mostly Big Tech. Not the smaller neobanks with shallow pockets and limited offerings. 

I think South Africa has a few financial services players that are really nailing the financial customer experience game – companies like Yoco, Capitec and Luno. Our other banks and even retail brands could learn from them in terms of creating financial touchpoints and experiences on all the devices that people love to use. 

How to create exceptional financial customer experiences

I believe the banks and brands that will remain relevant and loved by their customers in this new hyperdigital era, are the ones that are willing to partner with fintechs to give their customers great experiences in lots of little ways to improve their day, month or year. 

They have to be open to partner with the best of breed to simplify things like cardless and cashless payments, insurance, instalments solutions like Buy-Now-Pay-Later (BNPL), and digital identity verification via mobile phone. 

Conversely, fintechs also need to realise they need the banks for banking licences, banking-as-a-service partners who can help them to plug into the national payment system and align their compliance and technology with industry requirements, and partners with ecosystem knowledge so that they don’t hit brick walls they never knew existed in the payments and banking ecosystem. 

Partnerships are key in this space. 

Cross-industry partnerships are what enabled two young Irish brothers to build one of the biggest payments fintechs of the century, Stripe. Failing fast and often has become a bit of a startup cliché, but even Amazon’s Jeff Bezos says they still innovate so often that they fail far more frequently than they succeed. 

Those that want to succeed in the financial services game must be willing to be vulnerable, to try new things, to collaborate, to build interesting partnerships with other companies that are good at certain things they are not good at – and to accept that they don’t know everything. 

They should be willing to learn and to take a risk to be original. I can think of one or two African neobanks that are just copying overseas banks – and I predict the chickens will come home to roost. 

Anyone who wants to start a digital bank today also needs to accept that they can’t act alone. They are coming into an ecosystem that can either support them if they are team players, or shun them if they are arrogant lone rangers. 

One South African bank that is using the partnership model quite successfully (despite an initially narrow product offering) is Tyme Bank, thanks to its clever retail alliance with Pick n Pay. 

I believe the companies that are open, and that accept new and open ways of building exceptional customer services through embedded finance partnerships, are the ones that will have staying power. Those that close themselves off, will inevitably close their doors. BM/DM