Traditional banks developed slowly over hundreds of years and with prudence, placing control of customers’ money at the centre of their activity. The world’s oldest bank is the Berenberg Bank, founded in 1590 in Hamburg Germany. In Switzerland, Rahn + Bodmer Bank was established in 1750, making it the oldest bank still operating in Switzerland today.
Banking today is changing more rapidly than ever before in its history. Bank defaults leading to mergers & acquisitions are becoming more common. One recent example was in March 2023, when Credit Suisse, founded in 1856 by its predecessor, Schweizerische Kreditanstalt, was taken over by the UBS Group for CHF3 billion.
In addition to economic challenges, technology is also a major change factor for modern banking. It is said that modern banking is largely digital, remote, transparent, and efficient.
- In the UK, banks are closing brick and mortar sites at an alarming rate, with the resultant effect that finding an ATM is often difficult.
- The introduction of digital currency began in 2009 with Bitcoin, which was the first cryptocurrency created. Launched by a computer programmer or group of programmers, their actual identity remains unverified today.
- The UK Government and the Bank of England have been exploring the idea of introducing a CBDC, or “digital pound” for some time. In February 2023 they announced that although they hadn’t decided on a launch date yet, they believed it was “likely” that a digital currency would be needed in future.
The above can be construed by sceptics as being a soft-launch for the inevitable. So what exactly are CBDC’s and should we be concerned?
Central bank digital currencies (CBDCs) are the digital form of a government-issued currency that isn’t pegged to a physical commodity. They are issued by central banks, whose role is to support financial services for a nation’s government and its commercial-banking system, set monetary policy, and issue currency.
Merits in favour of CBDC’s:
- Authorities could apply wholesale CBDC’s to automate the affairs between banking institutions and retail CBDC’s to form a secure link between customers and monetary authorities.
- A retail CBDC would act like currency and in theory safeguard personal data by not disclosing payment operations.
- Conversely, account-grounded access to CBDC’s, would act like a conventional bank account and would be able to cover privacy safeguards.
- CBDC’s can clearly determine illegal operations as they are kept in a digital way and do not need serial numbers to be followed. This would in effect make criminal or suspicious operations and transactions improbable.
Arguments against CBDC’s:
- Unlike paper currency, digital currency would not offer the user privacy protections. This means that each and every transaction would be disclosed to the banking service provider.
- CBDC may have effects on Foreign exchange markets especially if China’s e-yuan becomes the primary payment instrument in China. Multi-national corporations will have to use it to run their operations, potentially affecting the US dollar’s position due to the size of payments in China.
- “The key difference with the CBDC is the central banks will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also the technology to enforce it.”
But as banks close, removing ATM facilities and merge, people are clearly being pushed to shift away from cash. By default, they are turning to digital financial transactions. Globally, banks and financial institutions now process far more digital transactions than they do in physical branches. As a result, a host of Fintech start-up platforms are now being founded. These are referred to as Neobanks.
NEOBANKS
A Neobank is a new type of non-bank fintech (financial tech firm) start up that usually partners with a bank to provide federally insured bank accounts. Neobanks tend to have lower fees and more competitive rates than traditional banks. This is because they provide internet-only banking services with in-person customer support unavailable.
Operating a low fees / high volume operating model, financial experts have questioned the long term viability of Neobanks. But with over 400 launches in the last decade, it appears that licensed Neobanks are here to stay. And now with incumbent banks also launching their own Neobank versions, the number of digital competitors is only getting bigger.
So what are the most popular Neobanks? Reports show that names such as Chime, N26, Starling Bank, Varo, Revolut, and Monzo to name a few, are among the most popular. But with an increase in the number of competitors driving lower margins, the real challenge for Neobanks would appear to be how to capture a higher share of consumers’ wallets and generate material profits. For this, using more technology seems to be the answer!
Artificial Intelligence (AI) used with chatbots could mean that service levels in Neobanks would become more efficient and effective with a minimal increase to costs. This could be achieved by embedding data and AI capabilities extensively across all aspects of a Neobanks’ operations.
Chatbots today, use natural language understanding (NLU) to distinguish the user’s need. This can be complimented by the use of advanced AI tools to determine exactly what the user is trying to accomplish. This would improve the ability to predict user needs accurately and respond correctly.
For many, the days of popping into the local branch of their bank to get cash or make a payment are already over. Working with internet banking has been a start for many non-techies to enter into the world of digital banking.
But will Neobanks prove one step too far for many traditionalists? It seems highly unlikely that the new AI technology will not be used in banking to support lower service costs in banking (and other service sectors).
The march of technology will be hard to stop. Along with Neobanks, some governments also seem determined to launch CBDC’s sooner rather than later. And as the rise of Neobanks continues supported by cutting edge technology including AI ,traditional banking as many of us know it seems doomed. And as brick and mortar banks are now also launching their own Neobank versions, the trend for digitalisation continues unabated.
Across the Accurity Group, our approach to digitalisation has been clear from the outset: although we have always led the market in terms of digitalisation, we treat IT as a tool to improve customer experiences by supporting but not replacing our renowned holistic personal service. We rely strongly on human interaction to provide a first class service, develop trust and maintain integrity.
Accurity is SECO licensed with a 20+ year enviable reputation as a trustworthy, reliable and transparent partner for companies of all sizes including SMEs, contractors and recruitment agents. Our core services include Employer of Record or EOR for contractors and international and domestic clients wishing to engage contractors. Our pricing system is fair and transparent. We are based in Switzerland and have excellent local knowledge and connections. Contact our team to see how we can help you.
