The fintech-telco merge is here, and neobanks are leading the way

Last month, Klarna announced the launch of a 5G mobile plan in the US, following announcements from Revolut, N26, and Nubank of similar expansion via MVNO partnerships. This surge marks the start of mainstream integration between fintech and connectivity services.

For financial platforms looking to grow, telco services aren’t a stretch; they’re a logical next step.  However, traditional banks are missing foundational digital transformation programmes that digital-first neobanks have already established.

Many finance businesses have been investing in mobile banking, but without a digitally transformed platform,  this will be a roadblock for those catching up.

Traditional banks have historically profited from observing emerging trends before implementing tech that worked. Between this cautious approach and their legacy reputation as a brand, banks have succeeded in this strategy. Now legacy tech stacks, fragmented infrastructure and siloed data have created an infrastructural restriction for traditional banks.

Implementing services such as mobile phone, internet services and media are lagging in comparison to neobanks; these are all simple additions to their portfolio. It is this diversification that will allow neobanks to open new revenue sources and appeal to a larger consumer base. As a one-stop-shop for all services, customers may consolidate their financial and connectivity needs to one business and boost brand reputation.

The current debate about the cost of a mobile contract to the bank suggests it is cheaper than acquiring a completely new customer, but for N26 and Revolut, it appears this argument is settled. Neobanks are synergistic with MVNOs, with technology playing a big part in their offerings, often only with online support and account access. Having lower overheads gives them greater agility to offer lower prices versus the incumbents.

Building out these services as part of their current offerings ensures more are retained as revenue-generating leads. The future of neobanks white-labelling personal insurance lines from major carriers is also promising.

The hyper competitive PL market is efficiently underwritten but struggles to reach younger consumers. Neobanks can offer insurers access to a new demographic, a low-cost distribution channel and a revenue-sharing model for businesses updating their policy systems.

For traditional banking firms, Neobanks are winning because they operate as platforms, not just providers of products. Financial institutes must become a well-rounded financial operating system for customers. This can start with simple experimentation in controlled sandboxes that allows institutes to trial new features without impacting legacy structures.

Mapping existing tech and identifying any overlaps or redundancies can also modernise the business and create an agile operating model to boost overall delivery around platform capabilities.

The ‘wait and see’ era is over, and the banking industry must act proactively to keep up with the innovation cycle. Integrating telecommunications services is a step towards a comprehensive digital business and reaching more customers.

The main challenge will be creating a reliable digital platforms and integrated offerings that add to customer benefits. Through requiring careful navigation, this strategy can offer revenue opportunities and value propositions to bleed out competitors.