The days of taking a queue number inside a bank branch and waiting to complete a transaction are rapidly disappearing. Today, almost every bank offers a comprehensive online banking platform where customers can perform a wide range of banking transactions. These digital channels are accessible twenty four hours a day through smartphones and other connected devices.

Despite operating advanced digital platforms, traditional banks still maintain physical branches, even though their numbers have been significantly reduced. The main reasons appear to be the lower level of digital adoption among older customers and the fact that corporate banking has not yet achieved the same level of digital transformation as retail banking.

Historically, retail banking has led innovation in financial services due to easier customer adaptation. Corporate banking solutions have typically followed. However, as traditional banks increasingly view fintech companies not as competitors but as strategic partners, digital transformation in corporate banking is accelerating. This shift is expected to remove existing barriers and complete the digitalization of commercial banking products and services.

What Are Neobanks and Challenger Banking

Challenger banking and neobanks are relatively new concepts in the financial services literature. These institutions operate fully digitally and do not maintain physical branches. Similar to many technology start ups, they benefit from agility, lean structures, and advanced technology capabilities. This allows them to implement business models and customer focused innovations that large traditional banks often cannot test quickly or may overlook.

As digital banking continues to advance, the transition to cashless economies will play a decisive role. According to McKinsey’s 2020 Global Payments Report, cash usage has declined significantly over the past decade. In China, cash usage fell from ninety nine percent in 2010 to forty one percent in 2020. In South Korea, it declined from sixty six percent to thirty four percent. In the United States, from fifty one percent to twenty eight percent. In the United Kingdom, from fifty five percent to twenty three percent. In the Netherlands, from fifty two percent to fourteen percent. Sweden saw one of the most dramatic declines, from fifty six percent in 2010 to nine percent in 2020.

Some Swedish banks no longer handle cash transactions, and Sweden has taken major steps toward becoming a fully cashless society. Experts predict that Sweden, Finland, the Netherlands, Canada, China, the United Kingdom, South Korea, Australia, and Singapore will be among the world’s first fully cashless economies.

For decades, the answer to the classic question about the oldest financial innovation still in use was coins and paper money. Many remember traditional savings boxes that were taken to bank branches to be opened and counted at the teller’s desk. These experiences now belong to a different era. For younger generations, cash is becoming a digital balance displayed within a mobile application. For businesses, it is increasingly represented by a digital code or account number integrated into online platforms.

What Are the Advantages of Neobanks

Once the transition to a cashless economy is complete, banking can operate entirely in digital environments. Neobanks are accelerating this transformation.

Key advantages offered by neobanks include:

  • Easier and faster account opening compared to traditional banks
  • Cost efficiency in international collections and cross border payments
  • Advanced account management tools, real time reporting, reconciliation capabilities, and intelligent alerts for asset and investment management
  • Access to lower cost credit through more efficient allocation of funds between surplus and deficit economic units
  • Improved access to financing for small and medium sized enterprises through data driven credit evaluation systems
  • Faster and more informed investment decision making supported by instant access to data and analytics
  • In addition to these, there are numerous other operational and financial advantages that position neobanks as important players in the evolving digital financial ecosystem.

Author: Ömer Yönder – Chief Strategy Officer

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