Fintech ecosystems transforming the financial sector: the case of neobanks

Advances in technology and digitalization have been incorporated to a large extent by the financial and banking sector, which have been able to use different tools to redefine and diversify the ways in which they offer their services, as well as to improve the customer experience from the comfort of their homes.

In countries such as Colombia, the use of digital banking services continues to grow, which is evidenced by figures from the Financial Superintendency. According to this entity, during 2018, 58.2% of monetary and non-monetary operations were carried out online, representing an increase of 27% compared to 2017 and 48% compared to 2016. Thus, the use of technology for financial operations and services continues to increase in the country. 

In this context, a few years ago, a new player joined the digital transformation that banking is undergoing worldwide, the neobanks. The latter are fully digital entities, which operate solely and exclusively through the Internet, i.e., they do not have physical branches and service is provided only online. 

The new generation of banks aims to offer a portfolio of products based on checking and savings accounts, debit and prepaid cards, basic money transfer services, and financial management tools such as savings plans, expense management and income management, among others. 

By means of Artificial Intelligence (AI) and the latest technology, neobanks seek to facilitate financial transactions to citizens, through websites and mobile applications that are characterized by being affordable for individuals and easy to use. The new generation of banks has attracted mainly young generations, who see them as the best option. According to The Economist, more than 15% of individuals between the ages of 18 and 23 in the United Kingdom said they have an account with a neobank. There are at least 15 neobank licenses in this country. 

According to Revista Dinero, the main objective of neobanks is to reach thousands of unbanked people, whose rates in Latin America are high. According to World Bank figures, almost half of the Latin American population is outside the global financial system. In Colombia, financial inclusion is only 55.6% in dispersed rural areas and 66.7% in rural areas, explained Forbes. For this reason, this new generation of banks aims to be the main driver of inclusion in the region and in the country.

Neobanks bring some benefits. They are digital organizations that provide updated and accurate information in real time, have 24-hour availability, access to products and information is done in a matter of seconds and have better transactional costs, not having to pay for physical spaces and logistics. 

However, for some, the main disadvantages of the new generation of banks are the lack of diversity in the product offering and the generation of possible distrust among users. In this regard, experts have pointed out that, by means of technological tools and AI, the cybersecurity of the applications used by them has been reinforced.

Differences between neobanks and fintechs. The latter are companies dedicated to offering different financial services and products through the use of ICT (Information and Communication Technologies) and, therefore, function as intermediaries between the bank and the client. Unlike the latter, in neobanks the entire financial, administrative, logistics and other operations are based on digital media and the use of ICTs.

Today, many fintechs have partnered with traditional banks, and some banks have created their own fintechs to improve the delivery of their services. 

Thus, the fintech ecosystem has become the mechanism that provides financial solutions at the lowest cost and with greater coverage, contributing to enhance financial services in Colombia and the world. An example of this is virtual banking and the development of mobile applications for carrying out transactions, such as the E-Wallet, which was created by the technology company Nuvu, with the aim of digitizing the entire cycle of granting a financial product from the linking to the delivery of this, through facial biometrics.

In short, fintech technologies contribute to immediate solutions, efficiency and adaptability in the financial sector.