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Challenges for Neobanks USA

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Neobanks USA

One of the primary factors of Neobanking Business Models, especially Neobanks based in the USA, is to offer fully online and digitized banking services, unlike traditional and legacy banks which operate brick-and-mortar banking services. As a result, Neobanking Business Models face some challenges and drawbacks that fintech start-ups wishing to enter the industry must be aware of when planning how their Neobank will operate. The Neobanking market is also becoming more crowded as the new wave of banking is seen as a more attractive and profitable option, and so some of these challenges may be resolved as the industry continues to grow.

The following are some of the challenges that the Neobanks USA community face.

Challenges of the Neobanking Business Models

High Transaction Costs and Limited Subscriptions

The Neobank market is plagued with high transaction costs and limited subscriptions because of the lack of physical locations. To maintain a sense of legitimacy, traditional banks must charge exorbitant transaction fees and offer a limited number of free services in order not to lose customers. In contrast, Neobanks must offer affordable subscription plans at a reasonable or lower cost in order not to lose customers. This can be achieved through an efficient use of technology, an innovative pricing policy, or increased interest in particular Neobank payment solutions. Neobanks must offer affordable subscription plans at a reasonable or lower cost in order not to lose customers. This can be achieved through an efficient use of technology, an innovative pricing policy, or increased interest in particular Neobank payment solutions.

Neobanking Profitability Issue

Another issue related to the Neobank business model is the profitability issue that is associated with the sector. The Neobanks have an extremely high operating costs, and as a result, they need to make a significant amount of money in order to maintain their operations. This is also coupled with the fact that the sector is heavily regulated, which means that it would be difficult for Neobanks to increase their profitability levels.

Regulation Issues

Another issue of the Neobanking business model is that the regulation surrounding the operation continues to change and develop as does the industry, and as a result regulation is constantly evolving to undermine Neobanks differentiators, in a bid by regulators to protect traditional banking services. The issue for Neobanks is that with the constant change of regulation, they cannot create a consistent long-term plan for the future, which undermines their ability to be a long-term competitor for traditional banks. This creates a risk for Neobanks since they cannot plan ahead, and as the industry changes, they are at the whims of those changes.

Convincing People to Switch

Neobanks also face the challenge of convincing people to switch from traditional, legacy banking systems to the newer, Neobanking business model. Neobanks have a difficult time convincing people that a financial institution is worth switching from its current system. Many of the traditional banks offer things that Neobanks cannot provide such as physical locations or personal relationships with employees. Additionally, Neobanks aren’t able to provide many of the same services that most traditional banks offer such as deposits and lending.