Wei You Pan, Director, Financial Industry Solutions
Financial expectations have drastically changed over recent years. The COVID-19 pandemic, coupled with a growing need for increased financial visibility, created a need for end users to have banking options accessible online and via mobile. And neobanks – now defined as a bank that operates exclusively via online banking without traditional physical branches – are perfectly positioned to meet these digital-first expectations.
From core banking, credit financing to collaborating with third parties providers in open banking, neobanks are constantly at the technological cutting edge. They ensure that digital-first philosophies are embedded into every aspect of their operations. But, what are the technology strategies and solutions adopted by neobanks that underpin these best-in-class digital experiences?
Stack-ing up a neobank
Core banking systems and technology stacks vary between neobanks. However, the considerations taken when implementing these most mission-critical systems are central to each and every one. Like all business applications and enterprise technology choices, the ultimate goal for a chosen technology stack and core banking system is to be reliable, resilient, cost efficient and scalable. Therefore, when it comes to the solutions of choice for neobanks, most adopt a vendor’s core banking system or endeavor to build their own.
Core banking systems are traditionally built on SQL databases as those are the prevalent proven database technology. However, with the maturity of NoSQL databases, core banking vendors like Temenos now support NoSQL document database such as MongoDB that enable their core banking solution to achieve record breaking performance. Document based databases like MongoDB offers distinct advantages in the neobank data stack by simplifying data access and management, handling both structured and unstructured data within a single data platform. Its document-oriented approach allows for seamless scalability and dynamic data models, crucial for neobanks aiming to deliver personalized and scalable financial services amidst the increasing competitive and changing banking landscape.
Elsewhere, the cloud-native neobanks look to leverage scalability and reliability. This is largely via public cloud hyperscalers like AWS, Microsoft Azure and Google Cloud. However, regulators often have requirements for banks to manage cloud risk concentration. This includes risks of cloud provider outages or customer data deletion, leading to the need for multi-cloud strategies at neobanks. By having to host multiple hyperscalers, neobanks in this position must employ the right data and SaaS platforms for their strategies to improve the reliability and security of their data.
Driving Credit Decisions with AI
Credit financing is core to any commercial banking business be it the traditional highstreet banks or the neobanks because it represents a fundamental revenue stream and a primary means of fostering customer relationships and growth. Credit financing such as the provision of credit cards or loans is even more important for neobanks than for high street banks because it is often the primary driver of revenue and customer acquisition in the digital-first banking model. Unlike traditional banks, neobanks generally do not have any physical branch networks and diverse service portfolios that generate multiple income streams. Instead, they rely heavily on innovative lending products to attract and retain customers. By offering competitive interest rates, flexible loan terms, and rapid approval processes, neobanks can differentiate themselves in the crowded financial services market and build a loyal customer base.
Moreover, neobanks use advanced technologies, such as artificial intelligence and machine learning, to enhance their lending capabilities. Today, with the combination of Generative AI, neobanks can enable more accurate credit assessments, personalized loan offers, and efficient risk management, allowing neobanks to serve underserved segments of the population that may be overlooked by traditional banks. This not only expands their customer base but also helps drive financial inclusion. In a landscape where digital convenience and personalized service are paramount, the ability to offer superior lending products becomes a critical competitive advantage for neobanks, underpinning their growth and sustainability.
Amar Bank, a pioneer of neo/digital banking in Indonesia focused on providing microloans to people who wouldn’t be able to get financial services from traditional banks (unbanked and underserved). Amar Bank created an AI-led, intelligent Tunaiku, digital lending platform, to enable more people to get the finance they need quickly and easily without the traditional lending requirements. Customers complete a simple application on the Tunaiku apps, get a quick assessment, and can be accepted for a loan within minutes.
It is well known in the lending business that it is a challenge to perform credit risk assessment for microloans loans that typically also do not have a credit history or the collateral to secure a loan. In the case of Amar Bank for microfinancing, MongoDB has played a critical role in enabling the richness and fast execution of its credit model for an efficient AI-driven lending platform. The neobank is able to perform auto-scaling with MongoDB Atlas, the multi-cloud database service, which automatically increases capacity as the number of customers and usage increase and dials down when customer use decreases. This helps keep costs low in a business where profit margins from lending are tight.
Improving Customer Engagements and Experience via Open Banking
We’ve recently seen a rise in neobanks integrating with third-party services to augment core banking services especially with also the rise in open banking. By offering external APIs, these neobanks can then push the boundaries of functionality, and can combine with other service providers to provide customers with more considered offerings. This is especially critical for neo banks who needed to expand their channels for customer acquisitions.
These advantages go beyond the initial user experience. Third-party, bespoke APIs can interoperate with their systems and help with or even build upon services like fraud detection, payments or KYC identity verification. In terms of specific APIs for neobanks, REST APIs using JSON (JavaScript Object Notation) as the data format are a favored option for the flexibility, simplicity and efficiency it offers. MongoDB Atlas’ Data API, a managed service that lets applications securely work with data stored in MongoDB Atlas using standard HTTPS requests can enable neobanks to store, integrate and process JSON data natively and securely with external APIs and the open banking ecosystem.
However it is not just the neobanks that are using the open APIs, well established banks with strong market presence are also competing in this open banking business to improve their customer journeys.
For example, Natwest, a major retail and commercial bank in the United Kingdom has moved from zero to 900 million API calls per month within years, as Open Banking uptake grows. According to Jonathan Haggarty, Natwest’s Head of “Bank of APIs” Technology – an API ecosystem that brings the retail bank’s services to partners — who said the bank now connects to 270 companies.
The most successful neobanks, typically those driven to improve customer offerings, are those who understand how to leverage the ability to collaborate with different value-adding partners in their banking ecosystem; and one of these parties are the third-party service providers in the open banking ecosystem.
Foundations first for best user experience
The digital-first, cloud-native approach neobanks employ is essential in building an attractive user experience for customers who want mobile-first, instant banking. Their proclivity for strong digital foundations and adoption of advanced technologies is even busking the more traditional and legacy financial institutions to experiment with solutions like GenAI.
Whether today’s banking systems are built from the ground up or from vendor offerings, neobanks are prioritizing technology that is secure, reliable, scalable and resilient. And when those digital foundations mirror these qualities, the possibilities of applications and features for users expand exponentially, meaning there is only more and more technological development and evolution to come.
