Neo-banks and Iso-banks (Part 2)
For some years, we’ve been talking about an emerging category of what we’ve been calling “near-banking”.
I have to say that I rather liked the product as it ended up. With two teenagers in the house I found it simple and convenient. We kept the Visa card in the kitchen and when one of the boys went to get some shopping or had to buy something for school or whatever they took it and used it and I got the transaction confirmation immediately on my phone and I could top it up when necessary.
It was sort of like a bank account for our house.
When I spoke about the rise of “near-banking” at Payments 2012 in London in May of that year, I made the point that there is an opportunity for a spectrum of near-banks that target a potentially wide variety of specific niches (the example I used then was a “Sagabank” for older people), and I still think that this is one of the attractions of the model. The near-bank is not a new idea. In 1997, I wrote (with my then fellow Consult Hyperion colleague Mike Young) an article for Internet Research called “Financial Services and the Internet” (Volume 7, Number 2, p.120-128). In that article we wrote about the potential for the new technology to assemble a banking service depending on the customers’ needs.
“Financial services customers use IT to build a seamless environment for themselves, “with the underlying best-of-breed products originating from a wide range of suppliers”; Financial services providers “retreat to a small range of products that build on core competencies, but supplied to a global market”.”
This came to mind when I read an interesting post about the new market segmentation for retail banking by the Starling Bank CEO Anne Boden. Anne refers to “neo-banks”.
“If you look at the US and some of the European markets, you can see another area of growth that is likely to hit the UK market soon, in the form of so-called neo-banks. These brands claim to deliver the best in class digital experience, with none of the risk of a balance sheet – so they effectively put a layer of information management over another banks’ product set… Simple and Moven are probably the most well known names in this space, with Number 26 starting to grow their reputation across Europe.”
She then goes on to talk about the O2 Wallet category that is centred around pre-paid debit cards, although I think I might argue that these categories have a great deal of commonality.
“The grouping of brands that have the greatest potential to cause customer confusion have to be the pre-paid debit cards.”
This made me think about breaking down the “near-bank” category. There’s a difference, I think, between something that looks like bank but isn’t (e.g., Moven or Holvi) and something that doesn’t look like a bank but performs the same functions as a bank in the eyes of the consumer (e.g., Bluebird). In both cases the proposition is essentially a mobile app plus a pre-paid card, but their grammar is different. Therefore, I propose a new terminology standard: I propose that we call the first category neo-banks (as Anne did) and that we call the second category iso-banks. Are we agreed?
With this terminology, we can distinguish neatly between neo-bank (Moven) and iso-bank propositions (O2 Wallet). In business terms, the neo-banks are competition to the retail banks but the iso-banks complement them in specific niches. I have a Simple account instead of a conventional retail bank account, whereas I have my Caxton FX euro wallet as well as a conventional retail bank account. What do you think?