One of the latest advances in the world of Fintech is the creation of app-based banks. Everybody has heard of at least one of them- They got featured in dozens of articles this past year, ads for them are starting to be more and more common, and/or we all have that one friend who likes to keep up with new concepts (or we ourselves are that friend). Yet app-based banks are not being held at the same level as traditional banks.
Banks appearing in the market all around the world, such as Monese (UK), Monzo(UK), Ualá (Argentina) or Number 26 (Europe and US), are often written about and referred to as a last resort should a person not be able to open a bank account with a traditional bank. Why is that be happening?
Scepticism is not unheard of when it comes to new technologies, in fact, quite the opposite is the case. Trusting our finances to said technologies sounds mental… That is, if one does not research beforehand. At one point, traditional banks emerged, and the majority of the population ended up trusting them. Even before that, society decided to trust the imaginary value of a couple of coins and think of all their valuables as an equivalent to a certain amount of them. All these systems were put to the test before the general public started using them or even hearing about them, and so are the new technologies nowadays. They most definitely try it all out more times than what was even possible in the past, to make sure the costumer will be able to trust their data is safe. There are alphas and betas before an official version is released, features are rolled out slowly to make sure nothing goes wrong. Not only that, companies usually offer a log of each of the changes and provide information regarding how their security systems work. Based off this, and assuming people research banks before opening an account with them, we can be assured that the distrust does not come from a lack of security.
Cost and methods would be the next area to explore. Traditional banks have an advantage: experience and a record. While that record is tainted by previous breaches, mismanagement of funds and corruption, it still includes decades and decades of quality service, and the aforementioned issues are bumps in the road when stepping back and taking a look at the full picture. The way these banks work is known by the general public: you have a card, and an account tied to it. You can withdraw or deposit money via ATMs and have a central office where you can resolve doubts or get special transactions done. Mobile and Home Banking is the popular choice today to do most of these things though. One gets all of these services at a certain price, which varies depending on several factors included but not limited to income, benefits, type of account, and where in the globe one is setting the account up.
When talking about cost and methods, app-based banks provide a huge advantage to the costumers who choose them. The cost for a lot of them is $0.-, with some of them just adding charges for extracting money in ATMs outside your country of residence. Others offer optional low-cost packages to make the few charges even lower, should one find it more fitting for their lifestyle. Another perk of app-based banks is the time saved: one does not need to go to a physical office to open an account, or for anything for that matter, since they are, as their name says, solely app-based. They provide amazing costumer support according to new users, which is another thing to take into account since a lot of traditional banks seem to rate less-than-ideal in that area. These new banks encourage independence rather than tie you down to them- You can leave any time you want. They also encourage debit use rather than credit, which is something extremely important to say to their demographic, a younger crowd.
So if app-based banks provide a sense of independence, offer practically free services, and are accredited as legitimate banks since they provided documentation that shows they are up to the task, we have to repeat the question this article started with: Why are they presented as a last resort?
There are many reasons for that. One of the main being bank statements. No matter where you live, you need to prove your income to rent a house, or take out a loan, move abroad, among other things. Presenting proof of your income while just having an app-based bank is slightly trickier provided the company asking you for them does not understand the technology. This, however, is changing as they are getting more recognition worldwide. It is just a matter of time for them to be seen at the same level as traditional bank statements.
Another reason is the flexibility these new banks offer when creating an account. They do not ask for income information, or credit-score reports. Since they are just providing a debit card, it is up to you to manage your money. This makes it the current main focus and consequently, the main demographic for these types of accounts.
Credit score is the last reason that will be addressed in this. As mentioned before, credit is not something app-based banks encourage, at least not at the moment. Some have hinted at the possibility of releasing credit cards, but since their main focus seem to be people who are just getting started in the banking system, it seems the idea is still a bit far away. While in an ideal world nobody would need a good credit score, in the present day and age a lot do, and others would just rather go into a bit of debt to purchase items faster than they would be able to if they had to save up beforehand. The faster app-based banks get recognition worldwide, the faster they will be able to provide credit cards and turn into an option for a bigger demographic.
In our culture, complaining about traditional banks seems part of everyday life. You hear people muttering angrily as they walk away from an ATM, listen to your co-worker complain about the insane fees his or her bank charge, and you yourself probably navigated the complicated costumer service maze at least once when they made a mistake that affected you directly. Traditional banks have for long tried to catch up to the internet, providing Home Banking and Mobile Banking as an alternative option, yet they did not seem to appease the general public.
With app-based banks appearing, we as costumers were given a new, revolutionary alternative. As they get more and more popular with the promise of independence, and backing from investors and even huge companies such as MasterCard (which provides the prepaid cards), it seems it is just a matter of time before they become the new normal. Whether you decide to try them out or not, it would be unwise to turn away and ignore them as they rise to popularity. Time will tell if they are here to stay. But data is showing time will prove these companies right, and app-based banking will overthrow traditional banking.
(This was originally posted on March 21st, 2018).