Neobanks are on the rise: Can legacy banks keep pace?

Neobanks have shaken up the banking status quo since the introduction of PSD1 and PSD2, tempting customers in with user-friendly interfaces and streamlined processes. Legacy banks have struggled to keep up with the pace of innovation in the sector, and as a result, the industry is littered with rushed digital offerings that exacerbate the feeling that neobanks are pulling ahead in the digital transformation race.

In this day and age, having a low-quality digital banking platform is enough to turn customers away in favor of the digitally proficient neobanks. Customer loyalty doesn’t hold as fast as it once did, and customers are far more aware of the alternative services available to them at challenger digital banks. The traditional incumbents can’t continue to hope that their history and experience will win out as customers continue to experience low-quality customer service and deficient digital banking services.

In the last three years, there has been a major transition towards digital banking, partly due to the recent pandemic. With the closure of physical branches, customers had to use digital and online banking on a large scale. This sudden change highlighted the insufficient digital service offered by many traditional banks, leaving a gap in the market for neobanks to fill. However, data suggests that even now, legacy banks are failing to respond by developing their own digital strategies to compete with these new challengers. It is crucial for established banks to invest in innovative solutions that prioritize their customers and establish sustainable digital strategies without further delay.

Improving customer service with conversational AI

Efficient customer service is the top priority for most banking customers. The average banking customer finds long wait times and low-resolution rates intolerable in the era of next-day delivery and online banking applications. In addition, the recent generative AI wave has created an eagerness amongst customers and businesses to sample the latest in AI technology and has raised their expectations of what customer service in the era of AI should look like.

To bridge the digital gap between neobanks and legacy banks, it’s important for incumbent banks to invest in digital infrastructure and look beyond basic capability click-paths or live chat to bring scalable, sophisticated AI to customers. Such a transformation is likely to require considerable resources and investment, but if legacy banks want to compete with their nimbler competitors, they need to take decisive steps to improve customer service in the immediate future.

Conversational AI can be just such a step. Selecting a low-code, customer-centered platform and adopting it with a considered implementation strategy can immediately improve the customer experience by rapidly improving resolution rates. Investing in the right conversational AI solution in the present also secures success in the future, as the technology becomes more efficient and cost-effective over time. 

Moreover, customers and employees alike benefit from conversational AI. By automating the parts of the customer experience that are most time-consuming for the customer, companies can provide higher resolution rates and relieve pressure on customer-facing staff, all while crafting unique and memorable customer experiences.

Legacy banks can’t afford to lose more ground

Legacy banks must take action to improve their digital offerings if they hope to retain current customers and claw back disillusioned ones. Customers are dissatisfied with the current state of affairs, and banks must acknowledge this and act before it’s too late.

Conversational AI can assist in this effort by enhancing response accuracy and enabling banks to better understand and assist their customers. Using Natural Language Processing (NLP) technologies, conversations can be precisely interpreted, resulting in fewer misunderstandings, faster resolution times, and happier customers. 

The ultimate goal of conversational AI is to provide a more personalized and efficient experience, an area that neobanks already have a head start on. However, investing in conversational AI is not just about catching up to digital challengers, it’s a way for legacy banks to improve their customer service and move beyond their competitors, earning valuable customer loyalty in today’s competitive banking landscape.

Image credit: Rawpixel/depositphotos.com

Jerry Haywood is CEO at boost.ai, a Nordic Capital-backed global leader in conversational AI for enterprises.