Mobile-first Banks: Pros & Cons
Banking: Traditional or Digital? Read Our Experts' Opinions
Whether we like it or not, traditional banking landscape is now a thing of the past. No longer is a banker an old man in an expensive suit spending their day in a high-rise office building downtown. And just like that, you can enjoy a long-term mutually beneficial relationship with a bank without ever visiting one of the branches or even speaking to any human beings at all! Even if you represent a business entity, for example, as a freelancer. Is this a good thing or is it a beginning of the end of personal finance as we know it? Fintech Compass experts investigate.
What led to neobanks' explosive growth?
Banking was traditionally a category dominated by big corporations with an insanely high barrier to entry. However, these circumstances startled innovation and made the "Wall Street" banks really slow to adapt to an ever-digitalizing landscape we live in. Feeling "too big to fail", they made little effort to improve their services over time. Customers had no other choice and had to battle fine print in their contracts, exorbitant fees and wasting time visiting branches for something that could be sorted online. Neobanks challenged that paradigm and brought a ton of quality of life improvements to end users.
For starters, an ability to open an account in less than 10 minutes from the comfort of your couch, and having your bank card mailed to you within a couple of days. Not ever needing to call the bank or visit a branch is also a massive advantage and a time-saver: these banks usually provide support via an in-app chat (which, in some cases, like at bunq, is available in 7+ languages). Most of them also have powerful and fast mobile apps that assist you in numerous ways: from making it easy to track where your money gets spent to changing card PINs on the fly. Others also offer niche features: Tomorrow bank from Germany helps you save the environment by offsetting your CO2 levels, while UK-based Monese helps you build your credit with an interest-free Credit Builder.
It is important to note that financial experts claim that the recent entrants to the banking industry would not be able to continue consistently making losses, thus, digital revolutionaries would soon be forced to increase the prices to have a more sustainable business model. As such, it probably is the best time to sign up for the one of top neobanks for personal banking now, before their services get more costly.
Analysis: Pros & Cons
Saves you time.
Not ever having to go to a branch for something that could easily be sorted out online is definitely something you will not miss after switching to online-only. Besides, in-app chat for support beats listening to infuriating music while hanging on the line, that's for sure.
Interestingly enough, countries that developed their banking systems at a later date (like China or Russia) are now ahead of Western EU countries in terms of mobile payment adoption. In these countries, people only really need their cell phone to go about their day-to-day, performing all transactions via Google Pay or Apple Pay
Not having dozens of printed out agreements and contracts doesn't sound like a big deal, but becomes one when you consider the fact that almost every person and business on Earth has a bank account (or even a couple!).
Easy access to customer support.
Sure, having a person to talk to face-to-face might seem like a huge benefit, but being able to message customer support at night even when you are out of town (or even country!) is just too convenient.
Partially due to their smaller scale, partially because of having to compete from behind, challenger banks are quicker to adopt new technology and more willing to expand their networks of partners.
Contrary to popular belief, these banks are doing their best to earn consumers' trust. Part of these efforts is being crystal-clear in pricing rules. Less fine print, more transparency - what's not to like?
Not available offline.
Only a few neobanks offer "offline" customer support, so losing your phone abroad can lead to a very stressful experience
While it's not a disadvantage of these banks specifically, you can get punished by criminals if you prefer to auto-fill your passwords and have no fingerprint nor PIN code enabled on your phone in case you lose it!
Just like these banks like adding features, they also absolutely love to update their users about everything! Needless to say, being bombarded with emails and notifications from the app can easily get annoying after a while. Fortunately, these can be turned off at any time.
Despite being illegal, European companies frequently require their employees to have a local bank account. For example, an Italian fan of the Dutch bunq bank with an NL account number might face pressure from his employer's payroll company. Yes, it rarely ever happens and yes, it is illegal in all EU member states, but we still felt like it should be mentioned.
Switching to Digital Banks
Is it a hassle to switch, assuming you still use a "traditional" bank? Simply put, no, it is actually pretty easy! Most online banks offer same-day account opening with an additional ability to utilize Bank Switch Service, where your new bank handles everything, including redirecting the direct debits (think gym membership, your cell contract and such) to your new account automatically. You'll also get a virtual card to use (as well as Apple/Google Pay) available immediately while you wait for a physical one to be delivered. Meanwhile, you can use various payment methods to top up your new bank account using your old one, instantly and fee-free.
All in all, you can reasonably expect to be up and running in less than a day in most cases. This also goes for students looking for a better bank - most of these allow you to sign up from 16 years old, and you would be surprised by the amount of options a freelancer operating as a business entity has when it comes to mobile-first banking! All in all, there really is not much hassle (and even less downtime) involved in switching unless you have a complicated situation, for instance, with your mortgage involved.
Mobile-first Banking: Good Choice Today?
Despite their benefits (and, of course, some pitfalls!), mobile banks are entering our life full-swing - you can see that by just following some of the bigger banks' (for example, UK-based neobank's called Revolut) annual reports - some of them boast up to 300% year-on-year growth! This means that they are already severely impacting the landscape of banking. So even if you did not intend to try them out yourself, chances are, you would still feel their impact - "legacy" traditional banks are now pushed out of their comfort zones and forced to compete in a modern borderless digital-first environment. Even audiences that were traditionally not served by these neobanks, for example, business accounts for freelancers, are now fully covered by online challengers to traditional banks.
The impact of increased competition, combined with the new rules of the game brought to us by the COVID-19 pandemic, result in banking veterans facing new demands from the consumers. People now expect total control over their money, clear and transparent pricing and flexibility in the range of products offered by the financial institutions. Overall, it is a very exciting moment in the industry when old-timers like ING, Barclay's and Chase are now forced to adapt or start slowly bleeding customers. And - as we all know - it never hurts to introduce some competition to a swamp that banking became in the last decades. "Get on with the times or face extinction!" might as well become the tagline of aspiring challengers popping up all over Europe.
Interested in joining the digital finance revolution by trying out a modern mobile-first bank? Check out our reviews of top European online banks and make sure to learn which banks made it to our "The Best Neobanks Right Now" list to find the one that suits you best!