The Bank CTO’s Handy Guide to Neo-Banks and What Makes Them Tick

By 2026, neo banks may be a USD 333.4 billion market. So, what is this phenomenon overturning traditional perceptions about banking? And why are they becoming so popular?

A neo-bank is a banking entity with no physical branches and provides nearly all banking services through digital channels. They rely on intelligent technology, deep automation, tight focus, and extreme customer-centricity to offer value to specific target customers.

In the past, many customers may have had apprehensions about engaging in banking activities in a pure-play digital mode, but the pandemic became a key catalyst for change. The convenience of executing transactions from the comfort of their homes became the most sought feature for nearly all consumer services, and banking was no different.

In fact, it would not be wrong to say that neo-banks have mastered the art of creating innovative, engaging, and uber-functional digital banking experiences centered around customers. In many ways, traditional banking players are still scrambling to figure out ways to achieve the customer-centricity that neo-banks have exhibited in the relatively short span of time since becoming mainstream. They have adopted solutions like chatbots that rely on powerful technologies like NLP and conversational AI. While such solutions are helping them elevate the current customer experience, neo-banks offer much more.

However, neo-banks’ growth doesn’t sound like a death knell for traditional banking entities. A neo bank is still a bank but driven more by a fintech play on the consumer side. It relies on technology that leverages a traditional banking partner’s banking infrastructure and framework. For a bank CTO, a neo-bank presents a new opportunity rather than a challenge. For traditional banking establishments, creating a neo bank experience is relatively easier as they already possess the underlying banking framework. This legacy framework is already the subject of modernization to build business agility and resilience. That done, they only need to learn how to build a modern digital-only banking channel on top of it.

Here’s a handy guide for bank CTOs to build a reliable neo-banking experience to meet the needs of today’s consumers:

Build around the Customer

As mentioned earlier, neo banks became a hot property because all their offerings were built for customers to get “banking” in the fastest and easiest possible way. This must be seen as a signal for traditional banks to move away from the friction in banking transactions. They have long focused on building newer experiences centered around their core principles of institutional banking. Instead, they must accommodate a model where customer feedback and needs are the basis for designing and developing new banking products.

Take, for example, the case of a dedicated mobile app. Neo banks conduct business with customers mostly through an app. While designing the app experience, it is important to take note of the target customer’s interests, workflows, and usage preferences. This means the bank must rely on deep and rich data analytics to understand the customer thoroughly to provide what is necessary and only that. For instance, the app may have to support multi-lingual interfaces when a large majority of potential customers prefer interaction in their local language.

Another example can be printing the photo of customers on the physical debit or credit card issued to them for the neo bank account. The basic priority is to let the customers’ needs decide how you engineer their experiences and not impose your will on them like traditional banking ecosystems.

Simplify Experiences

Traditional banking is mired with arcane and effort-heavy processes that impact nearly any service a customer may wish to avail. While planning to build a neo-banking channel, bank CTOs need to focus on simplifying customer interactions with the bank. This is crucial because most transactions would have to be “self-service” without bank staff intervention.

For example, opening an account should be as simple as signing up for a new account on any popular social media account. Customers need to just use their mobile phones, enter minimal data, and voila – they should be all set to bank from anywhere. Of course, heavy lifting, like KYC and onboarding, is required. The design genius is in introducing intelligent automation and methods like Robotic Process Automation to make those processes look effortlessly simple at the front end while still being complete and robust at the back end. Simplifying processes is one part of the journey. The other is building technology to ensure the neo banks back-end enables this simplicity, where the CTO can feel his or her impact.

Encourage Open Integration Standards

Neo banks are expected to offer more than just simple banking services. From enabling smarter investments to scouring for the best shopping deals, consumers consider neo-banks super apps. Consumers can avail themselves of services ranging from paying their utility bills to recharges and even booking salon appointments without leaving the banking app. This enables the neo-bank to build a relationship with the customer that scales beyond mere banking transactions.

While a bank doesn’t necessarily have to offer all ancillary services, they can partner with other service providers to enable their neo-banking channel to help customers avail of those services from the banking app. The first step is analyzing and predicting what benefits the customers will value. The next step is to draw those services into the umbrella of the neo-banking app. This is where the CTO needs to encourage open technology architecture standards and API-driven integrations. The technology must allow other 3rd party services to securely integrate with the neo-banking channel and enable data and information to flow seamlessly.

Enforce better Security

There’s a valid opinion that a neo-bank can be considered a technology company like Google or Facebook rather than a bank. While that’s up for debate, there’s little doubt that, like Google or Facebook, neo-banks collect a wide variety of transactional, behavioral, and personal data from different touchpoints the customer interacts with. This data is cleaned, mined, processed, and applied to derive meaningful insights that drive strategies across functions for these banks. This allows them to deliver unprecedented value to their customers. But it also poses a risk. The volume, diversity, and sensitivity of the collected data are huge. This is why CTOs need to ensure that the most modern security frameworks are applied to ensure no vulnerability is left unattended. The CTO must define, implement, track, and modify a robust and comprehensive security strategy.

Getting onto the neo-banking bandwagon is no longer difficult for established banking institutions. The CTO knows that the bank needs to strategically build a new functional business unit and a resilient technology infrastructure to deliver seamless banking experiences to consumers. It’s a time of profound change in the banking world.