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Banks Have Nothing To Fear From Neobanks

According to the Economic Times article Brokerages’ Retail Pain Is Banks' Gain, banks have stolen a march over neobanks in the e-brokerage space in India. Cheaper access to funds and greater trust - "no one lost money with a bank" - are two major factors that have gone in favor of banks.

Based on personal experience, I'd add better CX as one more factor.

I'd signed up for an e-trading account with a leading private sector bank back in the late '90s. I continue to use it over 15 years later - although not as often as my RM would like me to, but that's another story! My e-trading account is connected to both my bank and DEMAT accounts. (For the uninitated, DEMAT is what an electronic security repository is called in India.) As a result, movement of money and shares between my three accounts is seamless. So much so that:

  • I've never written / received a single cheque for any of my stock purchases / sales after onboarding this platform
  • I’ve forgotten the name of those paper slips I used to fill for depositing and transferring shares in my pre e-trading days!
  • I don’t recall having to visit the bank's branch even once after going there to open my account more than 15 years ago.

In contrast, the new crop of nonbank e-brokerages that came into existence in the early 2000s were - and probably still are - isolated from funding sources and security repositories. Their customers have to deal in cheques for sale / purchase of stock. They need to make frequent visits to their bank branch and the e-brokerage's office to drop and pickup cheques and other paper instruments.

Despite all that friction, nonbank e-brokerages were able to gain a foothold in the initial days. I attribute their early success to a growing market, their cheaper brokerage rates, more aggressive advertising and, above all, the modest user experience expectation of the Indian consumer who had just then started dabbling with Internet and ecommerce.

In the last 5-7 years, Indian consumers have gained exposure to many e-tailers and online travel agencies that deliver a highly frictionless experience. As a result, they expect superior UX in all their online interactions. Unfortunately, the e-brokerages' convoluted operating model fails to fulfill their heightened expectations. It was a matter of time before customers spurned the suboptimal CX offered by nonbank e-brokerages. Seems like that day has come.

In the end, friction has precipitated the rapid decline of retail e-brokerages.

I've been complaining about friction in Internet Banking and other digital banking processes and find it so ironic that banks have trumped neobanks - at least in this one category of financial services - on the basis of superior CX!

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 January, 2018, 08:56Be the first to give this comment the thumbs up 0 likes

When I wrote this post, somebody had privately counseled me to avoid using superlatives like "nothing to fear", instead advising me to hedge with "little to fear". I stuck to my guns because "nothing" was exactly what I felt based on my personal experience.

Now, there's research saying the same thing:

The Neobank Threat: How Worried Should Banks Be?