New Banking in 2021 Facing the Fintech Challenge and Neobanks

New Banking in 2021 Facing the Fintech Challenge and Neobanks

Traditional banking will have to reinvent itself to meet the new challenges of an increasingly digitalized world. Undoubtedly, Fintech has been a turning point in innovation in the financial sector worldwide, and both groups are increasingly willing to collaborate. In paper writing about banking, I stumbled upon the emergence of a new type of bank called a neo-bank. Do you know what a neo-bank is and how they differ? Read on! 

What are neobanks? Differences between the players in the financial world

Before we start talking about the new challenges of traditional banking and what awaits it in 2021, let’s take a look at what players exist in today’s financial world and how they differ.

Traditional banking

Traditional banking offers a wide range of financial services and products through multiple channels. Among others, branches, telephone, online banking, or the app itself. In addition, they have a banking license. 

Digital banking

Later came digital banking, a step beyond traditional banking. Digital banking also offers financial services and products through multiple channels, mainly digital (the web and the app) but without neglecting telephone customer service. The product catalog is not as comprehensive as traditional banking and also has a banking license. 

New banks

Neobanks, as opposed to traditional banking, have an exclusively digital operation. In other words, they are accessible at any time. They have a more limited catalog and lower costs and commissions. In terms of commissions, neobanks have more similarities with digital banking.


BigTech companies are the largest technology companies in the world. In their favor, they have extensive data banks that can be monetized. In the West, we would have the big GAFAs, i.e., Google, Amazon, Facebook, and Apple, but PayPal, Samsung, and Microsoft could also be in this group. On the other hand, in Asia, we would have BATs, including Baidu, Alibaba, and Tencent. These top 7 companies are in the top 10 companies with the largest market capitalization.


Fintech is a startup that is employing the most current technology to offer financial products or services. Unlike BigTech companies, they do not have this capital, but their 100% technological base unites them. 

What are the challenges for banking in 2021?

As we know, the future of banking is going through a time of great uncertainty right now. It faces the significant challenges brought about by the pandemic, which the industry was already facing.

Banks and financial institutions, traditional issuers of financial products, have been fighting a battle for some time to position themselves, adapting their marketing to these new times to achieve customer loyalty on a par with other sectors. Consumers will demand similar experiences from banks to those they enjoy at Apple, Netflix, or Amazon.

Goal: Improve the customer experience

To develop what has become known in the sector as ABC (Agility Business Customer), a lot has been invested in taking the personalization of the offer to extreme levels, demanded by the younger generations, future main customers. This ‘hyper-personalization, which aims to deal with individuals rather than segments, is a trend and is based on allowing each customer to design their banking product portfolio according to their preferences.

As in all other sectors, the ‘financial industry is subject to an increasing speed of digitization, being necessary to adopt differentiating emerging technologies or, in the worst case, not to be left behind. Robotics and Artificial Intelligence have more and more applications in daily operations, and their use is being transferred to the offerings that these entities provide.

The development of personalized experiences allows financial institutions to increase their market share. Moreover, the focus on loyalty will enable them to grow in quantity and quality. A loyal customer base multiplies the profitability of the portfolio of products offered.

Here are the six most essential areas that the sector will have to address in 2021:

1. Recovering profitability

This year has started with this banking challenge, which is none other than recovering the business’s profitability. The Covid has further exacerbated the problem, stemming from falling revenues and an environment at zero interest rates. To get out of this situation, banks will have to be more efficient with lighter structures, reducing branches and focusing on the segments with the highest volume of business and the highest profitability, and continuing with the process of bank concentration.

2. New business models

It is indisputable that financial institutions will have to redefine themselves in the short term. They will have to redefine their relationships with their customers, revolutionize their culture and structures, remodel their distribution network, etc. But, undoubtedly, the significant change they need is to improve their income statement. To become profitable again, in many cases, they will have to create new business models.

We cannot forget disruptive technologies such as Blockchain or artificial intelligence and all the options that can be given with these technological advances. In addition, financial institutions run the risk of becoming disintermediary. That is to say, losing the direct relationship with their customers with the detriment to the business that this may entail.

3. The drive for digital transformation and cultural change

Banking today continues to be immersed in the process of change known as “the fourth revolution.” It is characterized by digital disruption. But there is a challenge that the sector still needs to overcome, which is the cultural and complete change of the organizations. Talent and organizational culture go hand in hand. The new skill is challenging to capture and retain and now poses a challenge in the merger of generations that, on the one hand, bring experience and business knowledge. In contrast, the others bring freshness and digital skills. The union of both will be the competitive advantage of the sector.

4. Data-Driven

It has been shown that companies that base their decisions on data achieve financial growth three times higher than their less analytical competitors. Today, financial institutions still have a long way to go in this regard. What are the barriers?

  • A short-sighted vision: A cultural and decision-making change in needing results very quickly, which sometimes is not so simple.
  • Lack of technological investment: These data have to be stored, sorted, and analyzed to transform them into relevant information helpful in making business decisions.
  • Cultural change: The data will not always say what the business wants, and sometimes it won’t be easy to manage this duality between business strategy and what the data tells us. To overcome this challenge, banking should work on a joint vision of the organization oriented towards initial results that are more agile and tangible. 

5. Customer-Centric

Customer-Centric is the product conceived and designed around the customer. If there is one thing we cannot deny, it is that the pandemic has brought about a profound change in consumer habits. Customers are interacting more and more at a distance, and banks are forced to find that optimal relationship model, which inevitably involves digital channels. This is well known, above all, by the new competitors of traditional banking, such as neobanks, which know that it is essential in this new paradigm to focus their business around the customer, as well as a great user experience to attract and retain customers.

6. Secure Banking

Finally, as interconnectedness grows, points of weakness multiply. Digitalization has brought us some risks, such as the rise of phishing and cyber-attacks in general posing as banks. Without security, there is no trust, and without faith, there is no banking business, so making banking more secure is one of the critical challenges for 2021. Entities such as neobanks that have already been born 100% digital are usually protected in terms of cybersecurity, but without a doubt, traditional banking still has a long way to go.

Trendy financial products in 2021  

The world of finance, sometimes seen from the outside as something hermetic and reserved for insiders, is witnessing, as it could not be otherwise, a dizzying evolution where it is sometimes difficult to establish and understand trends. But the democratization that digital is bringing us cannot be alien to this sector. Little by little, some taboos are falling and making the borders softer and softer.

In this context, some financial products are very familiar to us (even too tight), while others are largely unknown outside the specialized field. We can speak of financial products of:

  • Investment, such as funds or shares.
  • Savings, such as fixed-term deposits.
  • Financing, such as mortgages.

Investment financial products have a common objective, to facilitate the investments of individuals and companies, with very different approaches. The primary variable, but not the only one, will be the associated risk. There will be different levels for each investor to choose the most suitable for their profile, more conservative or more aggressive, more willing to assume a high level of risk. In general, investments with a higher level of risk are usually associated with higher returns than other safer investments. The term, the product’s life, is another critical parameter to consider when choosing one or another product.

The leading issuers of financial products are banks and financial institutions such as neobanks, but they are also issued by insurance companies, stockbrokers, credit card companies, and other entities.

The financial world facing the pandemic

But in these times we are living through due to Covid-19, some studies show that companies with higher levels of profitability have higher than average scores in terms of health, safety, and human resources policies. Companies with their stakeholders’ relationship are more than just a pretty phrase on their website that seems to come out of this crisis more robust, making them an exciting investment for their shareholders.

Sustainability and profitability go hand in hand in a context where, perhaps, we can recover a little optimism and faith in our species. May it last.

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