As if disruption in the global banking sector was not already confusing enough, traditional institutions must now deal with the rise of neo-banks banks.  This new breed of competition are organizations that are purely digital. They don’t require the licensing, nor do they incur the regulatory burden of traditional banks. They exist without brick and mortar and provide fast, simple, easy to use, highly personalized services that are entirely done via mobile device.

Their rapid growth and success is a result of both a lower cost structure and a regulatory environment aimed at increasing competition and consumer choice. Additionally, they don’t try to be everything to everybody. They excel by offering a limited range of digital products like checking, savings, and a subset of consumer lending products, while deferring things like credit card and mortgage services to more traditional institutions. This results in a lower regulatory burden and reduced overhead which is passed on to the consumer via lower fees.

Their agility and speed is due to the absence of the burden of legacy technology. They are true digital natives — whereas most traditional banks offer a digital front end built on top of outdated and monolithic legacy system-based banking applications.

“These banks don’t carry the weight of legacy technology, so they can leapfrog over traditional infrastructure and disrupt the status quo.”

– Judd Caplain, Head of Global Banking & Capital Markets, KPMG International

Neo-banks target millennials who are more receptive to change. With each passing year the influence of Gen Y changes the shape of the delivery of banking products and services – and that is the long-term bet Neo-banks are making today.

The disruption being driven by this demographic shift has not gone unnoticed by traditional banks. Not only is it forcing banks to accelerate plans to modernize their legacy IT systems and infrastructure, but also to discover new ways of delivering customer value.

The good news is that traditional banks have several advantages over the neo-banks including:

• Well established and recognizable brands
• Long histories and well-established customer relationships
• Massive amounts of content and data on their customers
• Deep insights into customer saving and spending habits

And although traditional banks are starting from a position of competitive advantage, in order to retain and extend that advantage in the digital age, they need to quickly learn how to

• modernize and extend the same customer value that digital-based neo-banks deliver;
• shift the mindset and the culture from business transactions to providing experiences; and
• focus on helping people with their financial lives, not simply selling products.

No one wakes up in the morning and wonders what the next product offering from their bank is going to be. To that end, traditional banks need to extend and grow the value of the customer relationship beyond increasing products per household and focus on increasing value through improving digitized customer experiences.

To learn how one of the top 15 banks in the world partnered with Nuxeo to extend customer value, join us at Finovate Europe on February 14th at 11:15am for “The ticking time bomb of data: Making sense of legacy data in different systems.” presented by Norman Wren, former Director of Technology and Operations for Santander.