Written by – Manish Juneja
Digital banks with no physical locations are what we call neo-banks. Neo-banking operates solely online rather than having a physical presence at a specific place. Neo-banking is a broad term that encompasses a wide range of financial service providers who primarily target tech-savvy businesses. A neo-bank is a fintech company specializing in digital and mobile-first services such as payments, debit cards, money transfers, and loans.
Neo-banks have built a name for themselves in the fintech world. A large number of new firms have entered the industry. Their distinguishing feature is that they streamline financial services to match the demands of today’s digital generation. They use artificial intelligence and technology to provide tailored services to clients while lowering operational expenses. Customers can resort to neo-banks instead of regular banks since they are less expensive.
This blog discusses the top 5 mistakes Neo-banks should avoid while migrating to the cloud.
According to statistics, the worldwide neo-banking industry was worth $47.39 billion in 2021 and is expected to rise at a staggering 53.4 percent CAGR from 2022 to 2030.
Let us briefly examine the primary comparison between Neo-banks and Traditional banks.
Neo-banks vs. Traditional banks
While neo-banks lack the money and client base to unseat traditional banks, they possess a unique weapon: innovation. They may provide new products and form partnerships to serve their consumers faster than traditional banks.
Retail clients, as well as small and medium companies, are served by neo-banks. They use the mobile-first concept to differentiate themselves by offering cutting-edge goods and exceptional customer service. The old retail banking approach has failed to retain consumers since digitization and the pandemic. Neo-banks have emerged as a result of changing client expectations. Neo-banks provide highly tailored services at reduced prices using technology such as artificial intelligence (AI), automation, and cloud computing.
Traditional banks have several advantages over neo-banks, including access to capital and, most crucially, client confidence. Legacy systems, conversely, are weighting companies down, making it impossible for them to adapt to the changing requirements of tech-savvy youth.
5 mistakes neo-banks should look out for a while migrating to the cloud
- Lack of Initial Infrastructure Planning – One of the most common mistakes made during the early stages of digital transformation is just automating outdated internal operations. Instead, design digital services around the client rather than relying on back-office silos and unique product operations.
Considering neo-banking is such a new concept, early resource planning is extremely tough when migrating to the cloud. Neo banks are aggregators related to banks on the backend and have unpredictable scalability. They cannot design the infrastructure required for a digital bank like servers, storage, processors, and so on – and fall short.
- Fierce Competition – Neo-banks should not create inefficient and expensive operations. Many of these businesses begin as start-ups, which necessitates efficiency. Due to this requirement of being efficient and standing out, they face tremendous pressure to compete, perform, be better, and be unique. The pressure puts them in a high zone of rushing into mistakes. The race to drive more customers and transactions is where the fatality happens, where they succumb to the speed and mistakes made.
- The Pressure of Creating a Large Customer Database – When venture capitalists look to fund start-ups like neo-banks, they always want to look at how well the business is growing, the exponential business plan in the next few years, and if it is scalable. You are prone to blunders because of the pressure of creating a large customer base.
- Pick a Reliable and Agile Partner – An expert partner with clear and robust knowledge is required for a fresh concept to build and flourish better. A dependable and flexible partner may assist in the creation of a better digital experience. Due to their limits, neo-banks prefer to work with local partners, which may cause more damage than good.
Neo-banks must follow various local and worldwide regulatory data sharing and usage rules. Cloud suppliers have compliance norms that are at odds with established financial regulations. As a result, to avoid fines, they must collaborate with reliable cloud partners to cross-reference the contradicting requirements.
- Regulation and Compliance – When the platform and infrastructure are not robust, and digital banks run without an agile partner; security is a t risk. Risking is not limited to the business but the chunks of sensitive customer data that lie within. Managing and regulating people’s crucial data will benefit the company and make it scalable, gaining customer trust.
A complicated and scalable digital bank requires hundreds of specialized skills, and attempting to create them internally may overwhelm the capacity to deliver. Identity verification, fraud detection, risk assessment, and payment services must all be connected and managed as part of a comprehensive digital banking solution.
Rapyder’s role in assisting neo-banks during the migration process.
Rapyder is a globally acknowledged AWS consulting partner with extensive expertise in migrating companies and their workloads to the cloud. Rapyder can ensure the highest level of security for your business. Having worked with several neo-banks, Rapyder has brought in Cost-reduction, Improved customer experience, and proper provisioning of technology.
With more neo-banks coming up, we have successfully helped a few launch an online bank 3x faster than in an on-premises environment, enabling compliance with ISO 27001 requirements and strengthening security and scalability.
Neo-banks have the potential to become more than simply the next financial buzzword. In recent times neo-banks have started adopting the cloud, and to avoid being obstructed by obstacles, we have presented this blog with a few significant mistakes that neo-banks must avoid while migrating to the cloud.
Neo-banks’ power has yet to be unleashed as regulatory obstacles hamper them. In the following years, the banking sector may see an invasion of neo-banks that will permanently redefine the face of banking. Neo-banks have the potential to improve client experience and speed complex banking operations. Neo-banks may one day surpass traditional banks and become the future of banking as technological innovations continue to upset the world.
Need help with implementing digital banking solutions? Contact us; our experts will help you build and migrate to on-premise infrastructure correctly!