Why non-crypto native businesses are shifting to neobanks

11 July 2022

Small and medium businesses confront numerous obstacles on a daily basis – traditional banking being one of the biggest. From unadaptable products and uncompromising procedures to client conflicts and legacy tech blocking any transformation, there’s a lot to be frustrated about.  

Given these frustrations and the impact of Covid-19 and inflation, it’s little wonder that SMEs are looking to streamlined finance and banking options such as neobanks. In this article we explore why SMEs are making the switch to neobanks over traditional banking services. 

What are neobanks? 

There is one term the fintech world is buzzing about--neobanks. Neobanks, or as they’re called in Asia, ‘challenger banks,’ are financial organizations that offer digital-first (and sometimes digital-only) and mobile banking services such as cross-border and B2B payments, SME lending, working capital optimization, cash flow management, KYC, invoicing, accounting etc.     

A notable trait of neobanks is that there is no need for a client to be physically present in a given location to use its services.  

Basically, neobanks are trying to reach tech-savvy clients by offering them what they need. In today’s post-pandemic business environment, they have become crucial for SMEs because they focus on tailoring their products in a way that makes banking simpler and more convenient.


The shift to neobanks  

Digital banks and neobanks were first created back in 2014. However, after the Covid-19 pandemic, neobanks gained instant popularity with their online banking, free from legacy technology.  

Neobanks have risen in popularity thanks to the web2 SaaS revolution and now that web3 tech is starting to infiltrate the finance and banking sphere, more SMEs are looking at digital-only banking services to solve some of their pressing problems.  

Neobanks’ core value proposition is basically their ability to deliver innovative solutions that make traditional banking obsolete. A majority of traditional banks are squashed by outdated infrastructure and, therefore, they fail to meet expected goals when it comes to delivering financial services to SMEs, such as payment gateways, invoicing software and different perspective on asset management. 

We asked small and medium business owners, what were the biggest problems they’ve encountered with their banks:  

1. Complex KYC process – 13%  

Quick and impeccable onboarding processes and excellent service are crucial to attracting more customers for SMEs. This means they have to have an efficient and effective Know Your Customer (KYC) process. Since KYC is automated with neobanks, it means these checks can be performed more frequently for improved risk detection. 

2. Feeling overlooked - 37%  

Traditional banks have been neglecting the lending needs of SME community. SME lending sector suffers owing to the untimely and complex credit-seeking process. Neobanks, on the other hand, connect customers to their most suitable lenders. 

3. Poor product fit – 44%  

Neobanks point to numerous related clients’ needs such as centralizing the cash flow, enabling different activities and offering tailor-made products, which helps SMEs in creating a digitized credit history.


4. Legacy system blocking change – 6%  

Many old legacy systems still depend heavily on manual processes which demand resources, money and time, further reducing operational efficiencies. Neobanks aim to replace the old and conventional methods of banking by offering a digital-first customer experience. 

What are the advantages of neobanks? 

1. Low operational costs 

Traditional banks will often require a minimum deposit needed to open a business account, neobanks can operate without it. With no physical offices, neobanks have significantly lower operational costs. These cost savings are passed onto the customers through lower fees, which means SME clients can be more profitable.  


2. Accessibility 

There's less insistence on being a resident of a particular country, and cross-border accounts are common. 

3. Tailored experience 

Neobanks provide a more tailored approach. While traditional banks offer a broad range of financial services and products to a wide audience, such as credit cards, insurance, and loans, neobanks focus on a specific specialization 

This includes developing solutions for payroll, expenditure management, and automated accounting services for freelancers. In addition, neobanks commonly offer add-on assistance as a tool to improve company finances and address issues that SMEs have. 

4. Savvy services 

Services are conveniently online, with online and mobile banking generally being well-designed and easy to navigate. 

5. Transparency 

Communication and consumer-facing language tends to be simpler, conversational and clear. 

6. Simple signing-in 

Neobanks use algorithms and cloud-based tools to quickly deliver their services through an app. With just a click of a button, you can bypass many of the formalities required to open an account with a traditional bank. 


How Web3 might change the game for SME banking  

Artificial intelligence, Web3, intermediary-less systems, robust APIs and increased security can all be engineered in a way that lowers banking costs and improves net capital costs for companies and consumers alike.  

According to everything that’s said, neobanks and blockchain may seem like a perfect combination. After all, blockchain can guarantee that there will be no false invoices, no mismatch of inventory, as well as transparent information on company financials. 

Through Unido’s user-friendly protocol, participants basically can access three main features responsible for the system’s special implementation of the blockchain: Enterprise crypto banking suite, DeFi vault access and governance/security features. 

Custody and security are some of the issues that still frustrate many investors and institutions and digital banks are able to approach the problem with crypto-native solutions. As a matter of fact, we are talking to neobanks in Australia that are looking to build crypto custody and crypto trading products with technology. 

Choosing the right banking solution for your small or medium business 

Neobanks are, therefore, a great option if you belong to a niche that conventional banks currently ignore. 

However, if you’re the SME owner and you find aspects such as UI/UX, low fees, or you plan to open a long-term bank account, you should be aware of neobanks’ uncertain future. 

However, there’s no harm in trying out a few different platforms and neobanks to see if they’re right for you. 

About Unido EP   

Unido EP takes the complexity and expense out of digital asset management for organizations with sophisticated corporate governance needs. Our patented, end-to-end platform seamlessly automates corporate governance and self-custody of crypto assets so you can securely store, manage and invest in crypto without massive overheads.  

Unido EP comes with a web-based dashboard and a decentralized application (dApp) featuring a robust set of DeFi tools, easy-to-set-up authority regimes and iron-clad security. All of this is inside a complete digital asset management platform, built with financial institutions in mind but tailor-made for any organization or individual’s needs.  

Learn more:  

Unido Academy, Neobanks, Unido Ep, Unido Opinion
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