Customer Acquisition Costs for Traditional Banks vs Neobanks

When you consider banking, your mind probably goes to large brick-and-mortar offices, hardly functioning ATMs and too much paperwork to see over. Well, as is the case with many different organisations and industries in the 21st Century, the internet and developments in technology have brought about change to the way that we see banking. 

There have been a number of different start-ups launched in the past few years, which are known as neobanks. These banks are making waves as they are combatting the negative stereotypes of banking and offering an experience which is wholly digital, making it a lot more streamlined and straightforward. 

What Actually Is a Neobank? 

Let’s start by discussing what a neobank actually is. They are oftentimes referred to as challenger banks and are generally fintech firms that provide customers with apps, software and other pieces of technology that make the online banking experience much smoother. You tend to find that these fintech’s specialise in particular areas; for instance, there are some which will focus predominantly on checking and savings, whereas others might lean towards business. Customers seem to like using neobanks, thanks to the fact they are much more transparent and nimble when compared to their traditional counterparts. 

Following a study that was carried out by Exton Consulting, which is a firm for financial services in Paris, it was found there were roughly 256 neobanks. This is a clear indication of the fact that there is a market for these banks and that people are using them. Some of the most popular options out there include: 

• Monzo
• Starling
• Chime 
• Varo Bank
• Current

How Do Neobanks Turn a Profit? 

There are a number of different ways that neobanks make money, and these methods follow a slightly different business model than more traditional vendors. A fair chunk of the revenue generated by neobanks is done thanks to fees that are paid by merchants when customers make purchases using a card assigned to their bank. Due to the fact that these neobanks are smaller organisations, they are able to charge around seven times more for these fees than their traditional banking competitors. 

Challenger banks also make money from customers using out-of-network ATMs and also from receiving funds from a number of different venture capitalists. These venture capitalists have been funding neobanks over the past decade or so. A good example is how in 2020, the neobank Chime was able to secure a further $485million in funding, which meant that its valuation skyrocketed to a massive $14.5billion. Similarly, just this year with Varo, they managed to raise $63million, meaning their total number of funding obtained came to $482million. 

Cheaper Customer Acquisition 

Though there are a number of different ways that neobanks can make money, they also save a lot too. This is due to the fact that the cost of customer acquisition for neobanks is significantly less than the amount traditional banks will pay for customer acquisition. 

When it comes to acquiring new customers, traditional banks have to pay a fair amount, not only for operational reasons but also because of the means of marketing that they use. When you consider a traditional bank on the high street, the cost to acquire a new customer will come to anywhere between $150 and $350. That lower figure is made up purely of operational costs; the higher figure comes about because of the incentives that a lot of banks offer for transferring. Many will agree to pay new clients $100 or so if they make the switch that day. 

Neobanks do not have to pay as much due to the fact that they are run purely online. They make use of modern-day marketing tactics, and their price for customer acquisition usually comes to about $5 to $15. This price is mainly made up of just having to send the physical card. 

As such, it is clear why neobanks are disrupting the industry; as though none of them is as large an organisation as some of their traditional counterparts, they continue to make money and are spending a lot less in the process. 

Common Forms of Marketing for Neobanks 

Neobanks often take advantage of much more modern marketing practices. Some of these methods include but aren’t limited to: 

Ranking Using Keywords 

Content marketing is a big way forward for neobanks, especially those that focus on a specific niche. You tend to find that the more traditional banks will look predominantly towards encompassing a broad area, whereas neobanks will look towards being good for saving or another niche. As such, it means that they can be a lot more selective when it comes to picking keywords and appealing to a more niche audience. 

Social Media 

Given that neobanks are digital only, they tend to attract a younger audience. A lot of adolescents who are ready to start banking and making purchases will get their suggestions from the likes of social media, and as such, this is a sector that neobanks particularly focus on. 

Customer Acquisition with Neobanks 

Technology is taking steps to revolutionise businesses in every industry imaginable. Banks are no exception to this as recently, neobanks, which operate completely digitally, have been getting more and more popular. As such, there has been an increase in the number of neobanks available. 

Not only do they make money through various methods, but they do not have to spend as much, either. Customer acquisition is cheaper thanks to fewer operational fees, not to mention the marketing methods used are more up-to-date and efficient.

If you would like to stay up to date on how neobanks are affecting the banking industry or you need help with marketing your own neobank, then it may be worth reaching out to industry experts such as YouYaa. We have a team on hand who are well versed within the world of fintech, and as such, if you have any questions about marketing your business or would like any information on how we can help your business grow, then please do not hesitate to get in touch.