With well-known companies like Stripe, Wise, and Chime at the forefront, fintech has severely challenged the traditional banking sector. The fintech sector is expected to grow at an exponential rate, with neobanking transactions reaching $8.98 trillion by 2027, according to Statista. However, by 2027, more than 376 million consumers are expected to switch to neobanking, according to the same report.
Experts from Forbes emphasized that just 5% of neobanking applications are lucrative and that many of them have poor retention rates.
A fintech startup’s ability to succeed depends, like that of other entrepreneurial endeavors, on both its business plan and the errors it makes. At Appic Softwares, I’ve worked with five neobanks to develop and distribute user-friendly apps.
For instance, we have collaborated with Aspiration for almost three years. Our group assisted Aspiration in adding useful features, guaranteeing 99% crash-free software, and more. We also assist Cardless, another neobank, in scaling through a variety of strategies, such as redesigning their onboarding interfaces.
These neobanks have grown from seed beginnings to well-established fintech businesses with our assistance. We collaborate closely with them to find workable fintech solutions, carry out product research, and make sure the solution
s meet customer needs. In addition, we are aware of the technological and regulatory difficulties facing the neobanking sector.
Not establishing trust with users
Neobanks take on the role of traditional banking institutions, but they don’t bring with them the personal touch and sense of confidence. Users want to know that their money is secure when deciding to switch to a neobanking app. This is especially true for customers who want further information on how fintech operates.
According to research, 40% of American financial decision-makers have a neobank account, demonstrating the rising trust in neobanks. Although more customers are comfortable making deposits or doing business with neobanks, many are still dubious. For instance, a 2019 survey revealed that just 45% of people in the UK would trust an online bank as much as they did traditional banks.
According to age groups, the findings of another survey reveal divisive outcomes on customer trust in fintech businesses. Consumers in the 18–24 age range are more inclined than those in the older age group to trust neobanks. According to the survey, individuals who are 65 years of age or older had greater faith in banks.
Customers want to know that their deposits are safe in neobanking systems due to strict security measures. They won’t trust an app that acts in an automated manner or that has trouble offering them the assistance they require. Rather, when the app offers a consistently beneficial experience in all interactions, users feel comfortable.
Solution
Incorporate a unified brand voice as much as possible into the UX design. This covers the hues, text, tone, and style used in applications, websites, and other marketing platforms. Instead of creating material that is full of jargon, use plain lang
uage that readers can comprehend.
For instance, Klarna explains its array of financial services using straightforward language and a constant tone of voice. In the meanwhile, Nubank will have more than 70 million users by 2022 thanks to its slick UI, enjoyable user experience, and gamification.
In addition to language, it’s critical to guarantee that users may promptly get help via the app. Good user experience aspects that contribute to trust-building include clear instructions, simple-to-follow actions, and quick access to assistance. PayPal, for instance, has a user-friendly interface and walks consumers through the transaction procedure in easy steps.
Every user has a subjective and unique level of trust. As a result, I advise you to have conversations with people, just like we did, to learn how to successfully solve their problem points. These types of talks assist you in identifying uncertainties that keep people from switching to neobanks.
We’ve looked at how to use apps to develop trust, and the results are some useful advice.
- Write UX copy in a personable and emotive manner.
- To explain data, use graphs, charts, and other visual aids.
- Describe the need for users to do particular actions, such as confirming their identity.
- Rather than frightening consumers with error displays, provide them with guidance or answers.
- Break down difficult jobs into manageable steps.
Conclusion
Customers are persuaded to deal with neobanks by trust rather than flashy features. Good UX techniques that facilitate easy onboarding, simple usage, and an intuitive in-app support experience are the first steps in developing trust.
Putting Security Last in Your Mind
Fintech businesses that failed to prioritize security were headed to an early death. To circumvent traditional perimeter protection and obtain data, threat actors are turning to sophisticated social engineering techniques. A security incident that occurred recently at Revolut resulted in the exposure of sensitive user data belonging to over 50,000 users worldwide.
Global authorities have enforced norms and regulations that fintech businesses need to abide by, given their growing awareness of cyber dangers. For instance, European banks are required by the Know Your Customer (KYC) laws to onboard new clients. Meanwhile, financial institutions are authorized to confirm the identification of their clients by the US Economic Growth, Regulatory Relief, and Consumer Protection Act.
Lack of knowledge regarding cloud security exacerbates the risk to data. A lot of startups believe that cloud security is the providers’ responsibility alone. This is a mistaken belief as cloud providers are solely accountable for specific infrastructure components. Startups are responsible for securing the application, databases, middleware, and API.
Solution
Make security the primary tenet of your fintech application. Neobanks must use safe technology to safeguard consumer and financial data, such as
- cryptography
- dual-factor verification
- identification confirmation
Your engineers must evaluate the security risk associated with the various tech stacks—cloud servers, databases, APIs, and other third-party integrations—while creating the app. Incorporate elements that enable customers to safely utilize the neobanking services at the same time.
For instance, the finance app Chime uses fingerprint authentication and encryption to impose strict security protocols. Additionally, when it notices questionable activity, it instantly freezes the user’s credit card and sends notifications. Similarly, our group protected Aspiration’s app, database, and backend services from unwanted access to prevent data loss and financial losses. To provide safe biometrics on Android, we combined the biometric stack with strong APIs with Cardless. Then, to make sure everything operated properly and safely, we tested the biometric implementation.
Fintech companies need to adhere to legislation such as GDPR and PSD2 SCA in Europe, and AML, GLBA, and JOBS Act in the US, in addition to security features. PCI DSS is required if the app processes credit card data. Compliance with these standards keeps your business from facing penalties and covers the installation of policies and technology safeguards for consumers’ data.
Exabanque is a corporate multi-banking solution that uses strong security measures in its financial products and provides a thorough explanation of them on its website. Users may be certain that all transactions on the platform are safe and compliant with PSD2 regulations.
The most important thing is that users of your software need to feel secure. These are some insightful pointers for creating a finance platform that users won’t think twice about using.
- Divide difficult activities into manageable chunks.
- Provide users with guidance, instructions, and round-the-clock help at every engagement.
- Reassure users about the security of the processes and make your data privacy policy known.
Conclusion
Fintech security is essential for stopping fraud and data leaks. It entails putting strong security mechanisms in place to protect your app and its supporting infrastructure. If you take security seriously, there’s a good probability that your finance firm will succeed.
Providing A Bad Experience for Users
Even while neobanking is gaining traction, bad user experiences will drive away a large number of clients. According to a survey, 88% of consumers would uninstall an app if it had a lot of issues. It is inappropriate to assume that users will be able to work around bugs or experience occasional program crashes.
Complicated onboarding and in-app app operations, in addition to a malfunctioning app, are unquestionably contributing causes to a high turnover rate. According to different research, 80% of users removed an app because they couldn’t figure out how to utilize it. Given that consumers are picky about their deposits and have low patience for errors, this is very important for neobanks.
Solution
Before releasing your neobanking software to the public, make sure it is fully tested for bugs and other technical difficulties. Consumers will not tolerate an app that has been hacked, especially if it affects their hard-earned money. This entails collaborating with developers who have a track record of testing and publishing programs free of bugs.
To provide a safe and easy neobanking experience, for instance, our developers employ many software testing phases. We do unit and integration tests, perform tech and security audits, and code reviews, handle security issues, and safeguard sensitive data at every stage of communication. To find vulnerabilities, implement patches, and test the application, our team makes use of automated technologies.
As important as it is to release bug-free software, ongoing communication with customers is just as important throughout the app’s lifespan. Fintech applications, then, have to have a distinct personality and offer features that add value and align with their brand. As an illustration, Aspiration draws eco-aware consumers by displaying the number of trees they have planted when they swipe their debit cards.
In the long term, adding gamification components like challenges, badges, and incentive systems also aids in user retention. Revolut is a prime illustration of successful gamification. Loyal customers who spend more with the Reward card are eligible for a variety of benefits from the fintech startup. For instance, patrons of London eateries might receive up to 30% in return.
The software Smarty Pig serves as an example of how to employ gamification features correctly; it helps users save money and achieve their financial objectives. With the help of an easy-to-use transfer tool, customers may effortlessly reach their financial objectives and monitor their savings progress meter. Additionally, the whimsical pig image on it makes people feel welcome.
Lastly, utilize social components such as the well-known investment software eToro. With eToro’s CopyTrading tool, novice investors may automate their investments by mimicking the holdings of more experienced ones. With the app, investors may interact with their followers and share their insights, advice, and accomplishments in their feeds.
Conclusion
An entertaining, bug-free software aids in user retention and cultivates devoted users. Throughout the software lifespan, use gamification elements to consistently engage users. Before onboarding any users, put in place a rigorous testing procedure to identify and address any teething problems.
Increasing Surface-Level Elements While Ignoring Core Elements
A higher retention rate is not a guarantee of more features. In contrast, adding features that don’t improve the user experience is more likely to have the opposite effect. When attempting to make payments, people become confused due to a busy UI. Alternatively, they believe the app is not worth using to cover their basic expenses.
A poor product/market fit is frequently the result of inadequate client comprehension. For instance, 37 Coins offered SMS-based Bitcoin transfer services. Notwithstanding its adaptability, the business folded two years later due to difficulties transferring Bitcoin securely outside of the US.
When a new financial software has too many features, it becomes difficult to concentrate on the most crucial ones. In the end, you spend too much money developing features that people don’t require while ignoring those that are essential to your business’s success. Excessive feature testing also makes the process more difficult and raises the possibility of problems getting through.
Solution
When developing fintech apps, pay attention to what users want rather than making assumptions that haven’t been tested. At Appic Softwares, we employ surveys and interviews in our discovery sessions to find out what problems people are having. Next, we suggest a minimal viable product (MVP) that includes the most important features. This enables us to fine-tune the first release and precisely gauge user involvement before gradually introducing new features.
Our strategy is similar to that of profitable fintech applications. WeChat’s transition from a chat software to a payment wallet, for instance, makes use of Chinese consumers’ cultural sensitivity. It presents a function that lets users transmit virtual red packets disguised as money. The approach turns out to be effective and helps WeChat expand its e-wallet service’s user base.
Professional investors’ preferred option is Altruist, which is only available to Registered Investment Advisors. It offers financial advisers time and money-saving tools.
Chime, an app for neobanking, simplifies the process of being paid from a paycheck. Users who have a premium membership can receive their funds two days sooner by depositing a photo of their salary. In the meantime, Stash provides customers with varying risk appetites and objectives with customized programs, including retirement accounts, investments for children, and fractional shares.
Conclusion
Give true value-adding features priority over flimsy ones. Rather than relying solely on assumptions, get user feedback to confirm them. To create a neo-banking app that addresses actual issues, and involves them early in the development process.
Employing An Inefficient Business Model
Neobanks are for-profit companies, hence their founders have to steer their endeavors in the direction of success. Unfortunately, according to a survey conducted by Simon Kucher & Partners, just 5% of neobanks were able to make even. This highlighted how crucial it is to operate a financial firm with the appropriate business strategy.
Business models offer pragmatic ways to create income as well as strategic insights on differentiators. When fintech businesses don’t have a strong business plan, they might fail. 2020 saw the closure of Xinja, a neobank with an emphasis on the Australian market, due to an unsound business plan that gave deposits the highest interest rate. Because it accepted too many deposits and provided too few loans, the business found it difficult to turn a profit.
In 2016, Circle Back Lending, another peer-to-peer lender, also had a similar outcome. Despite having a respectable number of borrowers, many of them neglected to make loan payments on time. Investor confidence can occasionally be impacted by a change in corporate strategy, as Volt Bank discovered in 2022. The decision ultimately caused the firm to collapse since it had a negative cash flow impact.
Solution
Choose a business plan that will work well for your app and turn a profit in the long run. Before creating the app, go through a product discovery process to achieve it. This enables you to choose an appropriate company model or mix and match many successful ones. These are a few of the well-liked ones that prosperous fintech companies employ.
- Fintech businesses can split a certain portion of their earnings with other companies they join through a partnership. In exchange for utilizing the services, companies also give customers rebates and incentives. Both traditional banks and fintech startups use this business strategy. For instance, the Danish fintech startup Subaio and the Dutch bank ABN AMBRO collaborated to provide the latter’s clients with recurring payment services.
- For some financial businesses, charging a transfer charge is also a viable business strategy. Neobanks use this method and charge a nominal fee for P2P transfers, external transfers, and other transactions. At least 0.41% is charged by Wise for each transfer that a consumer makes. Additionally, the London-based Neobank charged a fee for many card spending categories.
- Fintech services may generate consistent and recurring income through app subscriptions. Startups might provide users access to different funding capabilities in the app at different subscription rates. For instance, the mobile budgeting software Dave charges a one-time fee of $1 per month, whereas Neobanks like N26 employ a freemium business model in which users must pay for various plans to access premium services.
- A referral fee is a commission that a fintech app receives when it suggests and sells a product from a third party using its platform. For instance, Credit Karma provides consumers with free credit check services in exchange for referral money from financial product suggestions made later on.
Conclusion
Issues with cash flow and profitability resulted from selecting the incorrect company strategy. As a foundation for their fintech firms, founders should think about their unique ideas and choose a business strategy that fits. Combining many revenue streams at different phases of growth is sometimes possible.
In Summary
The creators of fintech startups confront enormous obstacles in their quest to make their neobank applications extremely popular. In addition to having a working app, you also need to consider security issues, provide an entertaining user experience, cater to users’ demands, and make money in the end.
I’ve included some advice on how to steer clear of some of the most typical problems. Working with an industry-proven technology partner will increase your chances of success rather than trying to handle the fintech’s technical aspects alone.
Appic Softwares is a Fintech App Development Company that provides both new and existing businesses with the best financial software and app development services. We assisted new businesses like Aspiration in creating functional banking apps that appeal to customers. Our team is technically proficient and knowledgeable about the stringent rules that fintech businesses need to follow.
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