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The story, as is commonly told and understood, is that the financial world is opaque. It is complex. Around every corner lurks a financial institution that is ready to take advantage of unwitting customers with a hidden charge or fee. In France, for some reason, the largest banks still charge their customers merely to maintain a current account along with a separate charge to have a bank card. In the United States a common requirement at the largest financial institutions is a minimum balance or direct deposit made by an employer every month. The big, legacy institutions are the worst offenders, continuing to charge their customers for basic financial services. As the next generation of consumers begins their financial lives, many are wondering why they should have to pay fees for basic banking services?
Now, in response to those customer sentiments, the paradigm is finally being upended by new players on the scene. Fintechs, neobanks, digital-only challenger banks: they all offer a clean break from the opaque past. That is why if you come across an advertisement for a neobank, it is likely to include a reference to transparency and freedom. Just recently David Vélez, founder and CEO of successful Brazilian neobank Nubank, was speaking about his company’s most recent acquisition of Cognitect, an American software company. He said, “Nubank, at its core, is a tech company and we are true believers that technology can have a positive impact on people’s lives. We have a strong commitment to democratizing the access to financial services in Latin America and, by joining forces with Cognitect, we will be able to further enhance our products to give people control over their money through financial services that are simple, transparent, and human.” There are countless other examples of similar language being employed to tout the benefits of these new players. If the Brexit campaign told Britons to “take back control”, neobanks are telling their customers and potential customers a similar story, just in reference to their finances.
So, what do neobanks and digital challenger banks mean when they use the word transparency? What they are signaling is that, when it comes to financial services and managing your money, no more surprises. No more fees for what most everyone considers a standard, expected service from a bank. In practice it means:
- You do not have to worry about a hidden charge appearing in your account for no apparent reason.
- There are no fees associated with maintaining a current account, a debit card, using your card internationally, or pulling cash out at an ATM in your preferred currency.
- You receive instant alerts so that you are always aware of exactly what is going on with your account.
Too often, customers check their bank account only to find an unexplained charge. Now, every neobank is promising its customers a level of transparency and openness that does away with unexplained charges. While some financial institutions may be frustrated by new entrants driving prices down on traditional fee-based revenue streams, it is surely a boon to consumers who now have a bevy of reasonably priced, and often free, banking choices at their disposal.
The issue of banking transparency is closely linked to financial inclusion. High fees can be exclusionary for entire swathes of possible customers. Close to one-third of adults around the globe, 1.7 billion people, remain unbanked. According to the World Bank, “Globally, two-thirds of adults without an account cite a lack of money as a key reason, which implies that financial services aren’t yet affordable or designed to fit low-income users.” By offering straightforward accounts fee-free, neobanks are breaking down one of the major barriers to joining the ranks of the globally banked. Access to financial services is crucial to facilitating so many aspects of daily life, no matter the country. Simple, transparent current accounts can go a long way toward empowering people to lift themselves out of poverty.
Ultimately, what is driving these banks is a trust and a core belief in you, the customer. Regardless of whether you have thousands of euros (or any currency) or just a few, it is your money so you ought to be in total command of it at all times. Every single transaction is registered and tracked. When you open your account on your phone or your computer, you won’t be surprised by anything you see. Building and maintaining that trust is core to any neobank’s success. These new competitors are going up against major banks with serious resources and a reputation (good or bad) built up over many years. Neobanks are counting on radical transparency and low costs to build up their own reputation as a trusted financial partner throughout your life.