February 7, 2014
In the last few years, a new genre of virtual banks has come up, that is primarily targeting the tech-savvy mobile users for selling banking and financial products. Whether such companies (Mobile-Only banking services) will have a telling impact on the payments industry in months to come, or not, but these Mobile banks are certainly making lots of buzz in the industry as of now. Let us take a look at some of the key players present in this space and prospects/potential of such banks:
Some of the key players in this category are:
GoBank: The company launched its mobile account offering in June 2013, and is owned by GreenDot, which is an active player in card management industry in US.
Simple: The company launched its mobile (only) banking service in later half of 2012, and till date, caters to more than 82,000 virtual account holders.
Moven: Founded in 2011, it is the oldest player in US, in this space.
Fidor Bank: It is a virtual only bank based out of Munich in Germany, and has been offering virtual accounts to customers since 2009. The company boasts of having more than 200,000 customers till date.
All such banks are trying to target customer demographic that is used to mobility products and services. They don’t have a bank license of their own, and are basically working as front-end to an FDIC-chartered bank.
On the other hand, Fidor Bank, the lone major player in Europe, has its own banking license. Thus, it offers special services like peer-to-peer lending, crowd-sourcing, and bonus payments for interactions within the community.
Overal these Mobile-First Banking services also include:
Personal Finance Management:
PFM dashboards are provided on customer’s mobile screens by companies like Moven and Simple. These dashboards allow users to prioritize and allocate funds to different tasks or goals. Moven also provides real-time feedback about spending and helps customers in making the buying decisions using their debit cards. This, according to the company helps making the customer budget conscious and help him save money.
Where these virtual banks score over the traditional banks:
Payment is one of the key industries in which mobile first trend has made a profound impact. These mobile banking services are cost effective for the banks and the customers alike. There is no requirement of minimum balance, and most of the transactions are charge-free!
Where these banks lag behind the traditional banks:
Many customers look for accountability when taking decisions about something as sensitive as banking. They want to see and feel the physical presence of the banks: where they can go and talk to a representative, and drop a complain. The concerning question for an end customer is: What will happen if something goes wrong with my account?
Besides, the challenge for these virtual banks will be to expand their portfolio beyond the confined offering of checking and spending account using debit cards. To be one of the primary bank providers, they need to broaden their offerings portfolio.
These banks will also have to survive in a cut-throat competitive market in years to come. The barriers to entry are low, and we predict that seeing the success of the early entrants, many new players will venture into this space in the next few months. And this has happened before in the 90s and early 2000. When companies like Yahoo and others came up with internet only banks. The difference is this time around, its mobile-only banks that is being talked about.
Then, there are also the endless possibilities of mergers and acquisitions in this space. Some of the large traditional banks might find a takeover of one of these virtual banks to be an easy way of reaching the young customers!