Why should Neobanks offer crypto-friendly infrastructure : Crypto as a Service Platform for Neobank

Neobanks are apps built on top of existing bank infrastructure to deliver a seamless and innovative banking experience for their customers. Neobanks are purported as being highly customer oriented having user-friendly interfaces.

Digital banks have been growing considerably in the European market. At the same time, cryptocurrencies are gaining popularity to the point of almost being mainstream. Can Neobanks benefit from this emerging trend? In brief, yes, by allowing their customers to trade and use crypto within a regulated and risk-free environment.

Risk Management in a highly regulated market: A Challenge for Neobanks

Neobanks are usually more exposed to fraud and money laundering risks than their traditional banking counterparts. They usually have more inconsistent defenses against losses due to a comparative lack of collateral.

“Neobanks is learning how to tolerate and manage risk effectively”

Their exposure also extends to higher risk-taking in their securities portfolio, as well as higher liquidity risks (specifically, liquid assets reserves, relative to deposits, tend to be lower in Neobanks than in traditional banks).

A positive note to this is that Neobanks is learning how to tolerate and manage risk effectively, either by building strong procedures themselves or partnering with a risk-management Fintech.

Growing demand for cryptocurrency investments

Cryptocurrency demand is increasing due to 3 factors: traditional interest rates have been low (or even negative in some countries), crypto companies are pledging to solve critical problems, and investors have disposable revenue they are looking to invest.

Every day investors are tired of 0.01% savings account interest rates and stagnant government bonds, especially now that inflation is rampant and they want to offset it. Where do they turn to? Cryptocurrencies.

Neobanks profitability issue: How to convince users to switch from traditional banks?

After going through exceptional growth, Neobanks usually run face-first into their investor’s request to shift focus to creating a sustainable financial model.

After years of massive marketing spending to accelerate their growth, Neobanks have a huge user base and the challenge of monetizing them to ensure strong revenue streams. The shift of focus can be grueling if not properly planned. It’s usually a critical test of the company’s capacity.

Neobanks Vs Traditional banks: Who comes first?

Neobanks struggle when it comes to persuading their users to treat them as primary bank accounts. Though they consistently improve their apps and enlarge their list of features and products, traditional banks still prevail.

The majority of clients keep their primary accounts in traditional banks, as Neobanks’ value proposition is neither attractive nor comprehensive enough to fully replace them. No matter how friendly an app is, as long as the banks are the only ones who offer mortgages, business loans, and other financial instruments, they will not be overthrown. And the bad news for Neobanks: that’s where the money is made.

Admittedly, some Neobanks are exploring the credit/loans landscape successfully, but it’s not yet a common practice. Neobanks need to find new revenue streams while they figure out the classic ones, and they need to retain their users’ funds in the process.

Why should Neobanks shift to crypto?

Neobanks are in an excellent position to satisfy the growing crypto demand. Being user-friendly, they can make the cryptocurrency adoption process less scary to new users.

Their experience with risk tolerance and new technologies allows them to explore the crypto space comfortably.The need to monetize their growing base of users keeps them open to new products

We’re already seeing fintech companies such as Revolut, Square, and Paypal enabling cryptocurrency investments in their apps. Though promising, their crypto products have only scratched the surface. Here are the main reasons to follow the same path, and improve upon it:

Unlock a new revenue stream

It’s a known fact that many Neobanks struggle to turn a profit – especially European ones, where interchange revenues are lower and interest rates lean towards being negative (which means that holding users’ funds can actually cost money to the Neobank if it doesn’t transfer the cost).

A cryptocurrency exchange offers fintechs and neobanks the possibility to create a new revenue line.

Companies can either package it into a premium product and charge a monthly fee to users, earn money on the spread between buying and selling diverse cryptocurrencies, or create a combination of both. Such a feature can have a substantial impact on the monthly recurring revenue.

Attract new clients

The number of crypto-curious individuals in the world is at an all-time high. According to PwC, one billion crypto owners is a realistic figure by the end of 2022, up from the 300 million estimated in 2021.

Retail users wanting to get into cryptocurrency investing are likely to pick an app that, aside from having the right features, can convey a sense of trust and reliability. Neobanks can excel in this regard: they already have a strong track record and a satisfied user base with fiat currencies. They have a very good chance of attracting hordes of new clients if they offer crypto-related features.

Cryptocurrencies are a solid way of targeting a new user segment, keeping a competitive advantage, and standing out in the highly competitive Neobank market.

Maintain current clients

Along with new users, a crypto exchange will keep current ones engaged. Having all their finances in the same app means they won’t have to download and open a different app to use cryptocurrencies – now they can do it directly from their preferred Neobank.

For example, 20% of Paypal users have traded cryptocurrencies on the Paypal platform. Since the crypto trading platform launched, Paypal reported users logged in twice as much into their app!

Aligning the brand with the future

As both an asset and a currency, cryptocurrencies are likely to play a big part in the future of fund management, monetary policy, and cross-border trades.

Neobanks are already branding themselves as the future of banking, the democratization of finance, and the best way to meet client needs. Thus, it only makes sense to be consistent with that branding by following through with crypto and decentralized finance.

Crypto-friendly Neobank Solutions: Crypto banking-as-a-service

Banking Infrastructure powered by crypto capabilities

Neobanks built on top of a crypto banking-as-a-service platform ensure a frictionless banking experience for their users. In fact, they can have all of the following modules under the same app:

1. Onboarding & KYC
2. Individual IBAN accounts
3. Crypto wallets and exchange
4. Physical & Virtual card issuing and processing
5. AML & Fraud Monitoring

Moving from Finance to Crypto-Finance

Crypto finance offers people who have been shunned by traditional banking institutions the opportunity to acquire new financial instruments, transact their money globally, and be eligible for credit.

As their cryptocurrencies can back their loans, crypto finance services typically require no credit reviews, just crypto funds to support them. Of course, companies take some client identity data for tax reporting and anti-fraud purposes, but privacy is overall more respected.

That said, on a DeFi protocol, users’ identities are commonly not communicated, since they are evaluated solely by the value of their crypto. That’s a particular scenario though.

In brief, with crypto finance, you can take the modern financial ecosystem to more people than ever before while respecting their privacy and reducing the friction to onboard them. It’s the ultimate win-win.

Striga Crypto-native Banking as a Service: Your path to building and launching financial products

Join the financial businesses that use Striga’s cloud platform to delight their customers and launch their own products without the complexities that come when dealing with core banking solutions’ relationships, licensing compliance, and payment methods.

About Striga

Striga (formerly Lastbit) provides financial services infrastructure for companies in the crypto, banking & issuing space. Traditionally the cost & time associated with launching a FinTech solution whether it is a neo-bank, a business banking product or a platform has been absurdly high and complex. This is compounded 10x if you are a company that has an element of crypto in your business.