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The road to digital banking is paved with good intentions, but it's not without its share of failures. Both incumbents and startups encounter avoidable mistakes along the way. By learning from these missteps, they can pave a smoother path to success.

The stakes in the banking industry have never been higher. Simon-Kucher estimates that the last decade has seen around 400 launches of licensed neobanks, together serving nearly one billion customer accounts. Traditional banks face the threat of extinction unless they embrace digital transformation. On the other hand, neobanks and challengers must act quickly to establish themselves in the market or risk fading into obscurity. As competition intensifies, obtaining financing becomes increasingly challenging, which in turn puts pressure on profit margins.

Survival in this landscape won't rely on luck or just timing and financial resources. Failure will be down to fundamental strategic errors that include not fulfilling a true customer need, a tech stack that doesn’t support business requirements, or over focusing on technology at the expense of service. Additionally, lack of differentiation, an unsustainable business plan, and inadequate integration of technology with processes are among the most common reasons for failure.

When RBS launched Bo, it was probably guilty of not fulfilling a genuine customer need, resulting in only 11,000 sign-ups during its six-month existence. Australia’s Volt had to shut down due to fund-raising woes, and Goldman Sachs' Marcus struggled due to incomplete groundwork, burning cash with rapid hiring and a direct-to-consumer approach since its 2016 launch.

Whether you're a greenfield neobank or a traditional player planning to launch a speedboat, the question looms: How to ensure your neobank avoids biting the dust?

Actually know your customer

The key takeaway here is to start by understanding your customers. Perhaps talk to them during development – but keep in mind that they might not always know themselves what they want. Many market segments are already saturated so new thinking and deep dives are key.

Neobanks launched by bankers, rather than techies, may neglect adequate consideration of the tech stack. Often encumbered with ideas about how technology has been used rather than how technology could be used, these bankers fail to envision its true potential. While bankers neglect technology, techies obsess over it. They often prioritise a specific technology, searching for problems to apply it to. When the customer doesn’t care that much about the problem, the result is a dead end and the idea fails before it even launches. The place to start is the customer – not the technology. Then validate the offer and only once that has been achieved, build the tech.

Successful startups, on the other hand, get a number of things right. The tech stack at TBC’s Spacebank International, for example, was designed to fully exploit data to allow it to reduce risk when serving its target market. As a result it grew from a Georgian neobank to a regional cross-border platform that also services TBC’s speedboat in Uzbekistan.

Same same but different

Knowing what the customer wants is just part of the business case – being able to differentiate is equally important. Successful neobanks usually have a simple, unique premise right from the start. Germany’s N26, for example, used English to become the first pan-European digital bank, aiding non-locals with marketing and customer support in a language they understood.

Another neobank Bunq offers up to 20 linked accounts each with its own IBAN number, allowing families to have separate accounts for individual members or for different activities. In cases of both Bunq and N26, the startup spotted a customer need and provided a banking service that circumvented frustrations surrounding that need.

According to McKinsey, AI can empower neobanks to strengthen customer relationships by crafting intelligent value propositions that address unmet needs and delivering hyper-personalised services. An AI-first mindset can help ensure that AI capabilities translate into tangible business value and equip neobanks to differentiate efficiently.

Truly agile & scalable tech stack

The ideal technology is one that enables agile development at the pace of innovation, provides enough autonomy from third party providers to be able to deliver seamless service, that gets the seal of approval from regulators.

This is especially important in the current disruptive environment. Our benchmark data shows that neobanks using Mambu’s cloud-native banking platform were experiencing strong growth before the pandemic and maintained above market growth throughout and after it.

Delivering the innovation necessary for flexibility, a great UX and low risk depends on having a cloud-native core platform and tech-stack that can support upstream innovation build. To truly support and optimise these capabilities, neobanks need a flexible, agile, scalable and sustainable foundation.

For its foundation, TNEX, MSB’s speedboat, chose Mambu. Our scalable and seamless banking platform allowed it to focus on solving customer problems without worrying about infrastructure limitations. Powered by a composable approach, cloud-native banking platforms, like Mambu, make it easy to deliver market-leading digital banking solutions that newcomers need to stay ahead.

Banks that pay attention to these fundamental strategic areas are more likely to sign up the customers they need to keep the funding coming. It’s not rocket science – it’s common sense, and just what banking customers have been waiting for.

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