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Neobank has disrupted the traditional banking industry. About 400 neobanks were launched, serving more than 1 billion customers. Neobanks’ revenue increased significantly in recent years, hitting $3.6 billion in 2020. The numbers point to a lucrative industry with plenty of room for growth.
The question is, should you join the competition and hope to carve out a fraction of the industry? Or are there any hidden truths that you ought to know?
Neobanks like Revolut, Aspiration, and Chime are success stories in the fintech marketplace, with valuations ranging in the billions of dollars. However, reality paints a grimmer picture, as only 5% of neobanks managed to break even. This means most neobanks, particularly small and medium ones, are raking up losses.
At Uptech, we’ve worked with 5 fintech startups, including Aspiration and Cardless. Not only we’ve helped them release apps that users enjoy, but I also know what makes neobanks profitable. And the key lies in increasing the neobank’s LTV.
In this article, I’ll share the design and product strategies I use to help improve the LTV of neobanking apps.
Before we start… what is LTV?
LTV stands for Customer Life Time Value. In neobanks, the term indicates the potential revenue that the customer will generate throughout the ongoing relationship. A customer who made frequent and substantial transactions over several years has a high LTV. Meanwhile, users who sign up for the app but barely spend have a low LTV.
While LTV helps predict revenue, it doesn’t tell whether your fintech business will be profitable. To do that, you must include the customer acquisition cost – CAC. CAC indicates how much it costs to onboard a customer to the app. Neobanks use the LTV/CAC ratio to analyze long-term profitability. If the LTV is greater than CAC, the neobank makes money from each customer. However, the ratio needs to be at least 3:1 to cover other expenses.
This brings our focus beyond acquiring users. While new users are crucial to kicking off a fintech business, retention eventually leads to profitability. Therefore, you should continuously engage and deliver better customer experience to retain and increase customer spending.
How does design affect LTV?
It’s a mistake to assume that founders could release a new exciting neobank app and hope for it to thrive. Customers expect fintech apps to meet their expectations by solving problems or meeting their needs. For example, Revolut offers the convenience of setting up a bank account on the app without the usual paperwork. This attracts customers who prefer alternatives to traditional banking.
Even if you have a solid financial product, users will not hesitate to quit the app if it fails to provide a good experience. Apps that deal with financial transactions strongly impact users emotionally and their sense of security. A sluggish app might result in customers wondering if their funds are safe and protected. And if the user is confused by the in-app designs, they will be discouraged from using it.
But let’s not take my word for it.
A survey showed that 52% of users wouldn’t trust a company that provides a bad mobile experience. From that number, 89% of them have switched to a competitor. Also, 88% of users that leave are unlikely to return, resulting in permanent loss opportunities.
Undoubtedly, app design strongly influences customer retention, and hence the LTV. With that in mind, let’s explore strategies that help you improve your product design.
7 Design Strategies That Increase LTV for Neobanks
Use the design thinking approach
Instead of introducing features that you assume might benefit the users, you’ll need to ensure that they actually do. That’s where the design thinking approach comes in. Design thinking is a framework that allows developers to differentiate neobank apps with innovations by studying and solving user problems.
Rather than banking on assumptions, developers use the gathered user feedback to identify their pain points, needs, and expectations. Then, they design a solution that addresses the validated assumptions. Adopting the design thinking approach not only creates a product that solves real problems but is also stable and financially viable.
At Uptech, we involve the end-users at different stages of development. We know they are pivotal in building a product that adds value. These are the common characteristics that you’ll find in fintech apps that our team produces.
- An easy onboarding process that allows users to create an account without complicated steps;
- Intuitive and familiar navigation across mobile and desktop interfaces. For example, we standardize menu arrangements for all devices to avoid confusion;
- User-friendly interface with clear descriptions and visible buttons. New users must have no difficulty using the app;
- Use UI elements that reflect your brand value and personality, such as colors, fonts, and layout;
- Adhere to accessibility standards to ensure that persons with disability have equitable access to the app.
Build trust with users
Trust is essential to a neobank’s success. Consumers need to feel protected before they deposit and transact with the app. Unfortunately, instilling trust amongst users proves to be a tough challenge. For example, 20% of UK consumers don’t trust neobanks at all.
To overcome this hurdle, you should ensure that your fintech business projects are transparent and secure. Assure customers that you take serious measures to protect their money and funds. List them on the website in simple words to dispel any doubts. For example, Chime states the security measures on this webpage, including encryption, biometrics authentication, and real-time alerts.
Besides security, neobanks must be transparent about how they use and process customer data. While customers expect the app to collect personal data, they have a right to know how it will be stored, used, and secured. In such cases, share the data policies, regulatory compliance, and technologies involved when you seek permission to collect users' data.
Another hurdle is the lack of human touch in neobank apps. Customers want to be assured that help is a touch away when transacting with neobanks. In this respect, I suggest expanding your business presence online, such as on social media, the website, and the app itself. Create a customer support mechanism that allows users to track issues raised and the estimated resolution time.
Even with the above measures, trust-building for neobanks is still a challenge. For example, regulatory compliance differs between regions. Also, there are doubts about the security of 3rd-party integration that developers use to build the app. Hence, Uptech’s experience with developing fintech products comes in handy. We’re able to help you avoid common legal and security pitfalls.
Create a smooth and easy onboarding flow
User onboarding proves to be one of the biggest hurdles for neobanking apps. According to Delloite, 40% of users will abandon the process if it lacks transparency or is complicated. For neobanks, it’s about striking a balance between collecting information and ensuring a seamless process.
Neobanks are subjected to the Know Your Customer (KYC) requirements, which help global authorities prevent financial fraud and money laundering. As such, fintech apps will take customers through a series of processes for ID verification before they can deposit funds. While doing so, the app must explain how personal data is used and why it’s important.
Such verifications might appear cumbersome to some users and prevent them from completing the onboarding stages. These are tips that help ensure effortless onboarding.
1. Let users know what’s ahead to manage their onboarding expectations. For example, Robinhood shows how signing up will benefit new users.
2. Provide clear instructions to guide users along the process. The Neo Financial app is a good example.
3. Be transparent and state why the app requires users' personal information like Revolut did.
4. Never insist on gathering optional information during onboarding. Instead, allow users to do it later.
5. Don’t make users enter the same information repeatedly. Doing so makes onboarding unnecessary time consuming and risks data inconsistencies.
Make authorization simple
Traditional banking apps enforce stringent security measures, including PIN, one-time password, and other verification steps. While this allows users to transact securely, they do so at the cost of convenience. Meanwhile, neobanks turn to simpler, yet secure authorization methods such as biometric verifications.
Compared to PINs and passwords, biometric verification is more convenient and secure. Users won’t face issues such as creating and forgetting complex passwords. Instead, they can access their neobank accounts and transfer money instantly by scanning their fingerprints.
Add gamification elements
Finance is rarely an exciting subject, but if you want to retain your customers, you need to bring fun into the app. Successful neobanks apps turned to gamification to keep their users engaged. According to this research, gamification increases the public acceptance of neobanking apps.
Gamification brings interactive features that keep users engaged by up to 48%. Users become more invested in the app as they complete milestones, collect badges, and unlock achievements. Besides, including cashback and rewards also help in sustaining in-app activities. Hence, gamification is the key to retaining customers and increasing their LTV.
So, how do you gamify a neobank app?
First, you’ll need to understand your users' needs and pain points. Then, determine what will keep them engaged when using the app. Remember not to overdo the in-game elements because too many features could overcomplicate their experience. For example, simple financial quizzes are good gamification elements. They allow users to collect points and unlock rewards with minimum effort.
If you need more references to gamify your app, Monobank is a decent example. Used by 10% of Ukrainian populations, Monobank’s success is partly attributed to its gamification features. Besides its cat mascot, Monobank keeps its users engaged by allowing them to unlock a series of badges. It also introduced minigames, which proved popular amongst users.
While minigames and finance seem a weird combination, the recipe works for Monobank. Space Invader, introduced in 2020, was played over 7 million times by Monobank users. This encouraged the neobank to launch a second game, Sausage Cat, to captivate its user base.
Make data visualization perfect
Neobanks app shouldn’t be limited to basic financial functions. Instead, take advantage of data visualization to give users a clearer picture of their financial health. For example, use charts and graphs to help users picture their monthly earnings and expenses, just like Monobank and Revolut.
Besides reporting current financial data, some neobanking apps use machine learning to predict future cash flow. For instance, modern neobank apps study the user’s transaction history to project how much they could save in upcoming months. Such an approach adds value and will increase the LTV.
Here’s how the Neo Financial app uses predictive analytics to project investment growth.
Create product identity
More neobank competitors will eventually enter the market. This makes it crucial for you to establish a unique product identity that resonates with users. Instead of trying to cater to the general public, focus on a specific niche and build features that resonate with a targeted group of customers.
For example, Aspiration carved a market of its own amongst environmentally-conscious people. Meanwhile, sports fans are the main customers of Cardless. These neobanks became trustworthy brands within specific communities by empathizing with and solving key problems that their customers face.
According to a survey, 46% of consumers stated that they would spend more on brands they trust. From our experience, good UI and UX elements play an important role in encouraging trust and engagement.
For example, let's observe how the old Chase app compares to the proposed new version. In the former, Chase features an unimpressive, outdated color palette. Meanwhile, the newer interface has the right combination of UX elements that deliver a strong first impression.
Our team understands what it takes to build a product with a strong brand identity. Learn more from this in-depth heuristic analysis of the Chase app that examines the key UX/UI elements.
LTV is an important metric to ensure a neobank’s long-term profitability and continuity. I’ve shown you proven strategies and examples that help you acquire and retain subscribers for fintech apps. Here’s a highlight of key points you must prioritize when building one.
- Simplify onboarding to make signing up fast and hassle-free;
- Apply good UX practices to allow seamless navigation;
- Analyse user behavior and continue to improve your services;
- Secure users' data with biometric technologies and be transparent about data usage.
Get in touch with our team to learn more about developing a profitable neobanking app.