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Every neobank its own niche

In some of my previous blogs (cfr. "Is a new bank consolidation wave inevitable?" - and "Neobanks should find their niche to improve their profitability" - I already shared my opinion that it will be hard for neo-banks to survive as long as they focus on a too generic service offering and that they have more chance of success if they choose a well-targeted customer segment and focus on that.

While traditional financial players, have often focused on all customers to gain maximum scaling effects (with a few exceptions like Private Banks), neo-banks with their pure digital-footprint and ability to deliver interesting digital value-added services, are ideally positioned to service niche-segments.
Additionally, it is almost impossible for incumbent banks to compete with neo-banks on those niches, due to their large operating cost structures and their limitations to deliver quickly and efficiently the specific value-added services requested by each customer niche.

Today you see already worldwide more and more of those neo-banks focusing on a niche customer segment (based on characteristics like age, gender, origin…​), e.g. neo-banks focusing on

  • Women, e.g. GoWomen, Sheroes, Elas or Lucy

  • LGBTQ+ community, e.g. Daylight or Pride Bank

  • Specific ethnic groups, minorities and/or immigrants, e.g.

    • For the Black (and brown) community there is Kinly, MoCaFi, Greenwood, First Boulevard or Paybby

    • For the Latino and Hispanic community there is Fortú or Valor

    • For the Asian community there is Cheese

    • For immigrants there is Fair or Majority

    • For Indian expats there is Swadesh

  • Islamic banking (following the principles of Sharia), e.g. Insha, Niyah, Fair, Rizq or Fardows

  • Specific professions, e.g.

    • For taxi drivers there is CabDost or Uber Money

    • For docters there is Panacea Financial, Laurel Road or Cure

    • For musicians (and everyone making money with music) there is Nerve

    • For small-business owners there is Lunar, Novo or BlueVine

    • For freelancers there is Lance, Lili or Oxygen

    • For gig workers there is Gig Money or Moves Financial

  • Elderly, e.g. Longevity Card

  • Minors (kids and teens), e.g. Copper, GoHenry, Greenlight, Kard, Yours or Streak

  • Newly weds, e.g. Hitched

  • People with disability, e.g. Purple or specifically for people with dementia there is Sibstar

A bank focusing on a specific niche-segment will be able to deliver a fully adapted and highly personalized customer experience to its customer segment (target group), i.e.

  • Specific features only relevant to that customer segment

  • Specific style for both look-and-feel (e.g. images and style guide), the used language and tone and the general branding (e.g. advertisements or content creation)

Some examples of such highly specific feature and style are:

  • LGBTQ+ neo-banks will obviously distinguish themselves in their wording (e.g. gender-neutral terminology) and style (e.g. not the traditional husband-wife pictures you see at many incumbent banks), but also in specific features. E.g. an easy possibility to change gender in the bank systems (which can be a nightmare in traditional banking systems), allowing to use your true name and not your official name on all communication and on the bank cards (cfr. Mastercard’s True Name initiative) or a more adapted credit scoring and credit acceptance process for the LGBTQ+ community, but we could also think of deals (e.g. in the form of cashbacks) for businesses specifically allied to the LGBTQ+ community. Additionally specific advisory services can be offered for processes where the LGBTQ+ community typically deals with a lot of (legal, financial and administrative) complexity like surrogacy, adoption, inheritance, sex change…​

  • For specific professions, there are obviously specific credits and leasing constructions associated to the specific profession, but the bank can also act as a reseller and service provider for specific tooling for the profession (e.g. equipment, software…​). Additionally there can also be specific insurances, like insurances against medical failures for docters, special car insurances for taxi drivers or bike insurances for bike couriers. Additionally features like automatic quarterly tax payment can be very interesting for this target group.

  • For elderly this can consist in features and style elements, like the usage of bigger font size on all digital channels and communication, providing financial and technical education, more possibility for in-person contact, special services like succession planning or health-assistance (like Belfius Insurance spin-off Jane, which uses artificial intelligence and sensors to allow senior citizens to live longer in their own home)…​

  • For minors this will consist in a very digital and social-media focused offering with a lot of gamification (to make financial services more attractive), collaboration with influencers, financial and social media education services (like e.g. saving goals learning minors to save from young age, but also educating minors to stay safe on social media), specific control mechanisms for parents (e.g. spending limits or control on MCC codes for spending, but also easy oversight of all financial actions done by the minor), access to specific events (e.g. concert ticket sale)…​

  • For neo-banks focusing on specific ethnical groups, it can be important to have all digital channels and communication translated in specific languages and have customer care departments with a good knowledge of the language, culture and habits of the target customer segment. Additionally it can be important to support specific platforms (e.g. social media) which are popular within the targeted community, e.g. Cheese focusing on the Asian community has everything translated in Chinese, has a customer service fluently speaking Chinese and offers communication through WeChat.

Even though this targeted personalization can be a very powerful competitive advantage, it’s not all sunshine and roses.
A well personalized experience is easier said than done, as no single person fits perfectly within 1 niche-segment. If you’re a gay Asian doctor, do you bank with Cheese, Daylight, or Panacea? And what to do with customers moving out of the target niche segment, e.g. if you change profession, get older in age…​
This mean every niche neo-bank should not exclusively focus on the target group, but also attract and retain customers with a strong affinity to the target niche segment. This can only be done by offering a sufficiently rich and generic product and service offering.

Additionally such a niche bank will not have the scaling effects of an incumbent bank or even of more generic neo-banks. This means it can be difficult for niche neo-banks to compete on price. Niche neo-banks should therefore focus on making a difference via the quality of their products and value-added services they bring and becoming really a trusted partner for the community they serve.

This trusted position in the target community can be a powerful, but also risky "weapon". These niche banks can grow very fast thanks to word of mouth, as often the communities they serve are highly interconnected meaning 1 client will influence heavily another customer or prospect (thus also the need for effective member-get-member programs). On the other side of the coin, one small communication error or small issue with a specific customer, can have far-reaching impacts due to the strong community feeling (shared on specific social media groups). A close monitoring of the relevant social media groups and influencers of the targeted community and a fast (pro-active) reaction to any potential issue is therefore extremely important for these kind of niche neo-banks. Or like they say "trust takes years to build, seconds to break and forever to repair".

Additionally these types of banks can limit their cost structure by

  • Very targeted marketing, which allows to be very cost-effective from a marketing point of view

  • As almost all differentiating features of a niche-bank are front-end driven, it is advisable for these types of neo-banks to build their offering on top of a Banking as a Service offering (like Solaris, …​) or in partnership with an incumbent bank or even one of the existing neo-banks (e.g. Starling bank wants to start offering their services more and more as a service to other banks). This means the neo-bank can also avoid having to obtain an expensive banking license, but can suffice with no license or a cheaper eMoney or payment license.

  • Building out a strong and effective ecosystem of well-targeted partners, which can enrich (complement) the offering of the neo-bank and allow to deliver new competitive features at rapid pace.

Clearly in a society of hyper-personalization (it’s all about me), the future is bright for well-targeted and efficient service offerings, as long as the bank can also evolve with its customers and keep its cost structures very well under control. For a niche bank, profitability should be preferred over scaling.

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