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Why insurance is a key component to the success of neobanks?

Neobanks have made a significant impact on the financial landscape, more so now than ever with Covid putting online demand into hyper drive. According to Business Insider Intelligence global neobanks count 39 million users today, and they expect that number to surge to 98 million by 2024, with the actual number of accounts being roughly twice the number of users.


Despite this growth however, 2019 and 2020 saw deepening losses and a multitude of complaints from customers about service. This leads us to the two most important actions neobanks must address; how to work towards profitable growth and consolidate customer trust. While most digital banks are mastering most of the banking value chain in order to deliver superior customer centric products, insurance has been an understated component for most.

According to the Finnovate report, insurance is well positioned for significant impact on the customer value proposition for digital banks.


At present only a handful of neobanks have taken advantage of insurance as a benefit to their customers and for a couple while this makes up over 30% of the total benefits to their customers (an indicator that there is compelling value with insurance), there is a lot of room for neobanks to embrace insurance products and strengthen their infrastructure towards growth.


Why does insurance promise tangible value to neobanks?


  1. The acquisition of new customers & boosting customer loyalty

  2. Incremental revenue benefits of selling insurance


The acquisition of new customers & boosting customer loyalty


Creating value through tailored insurance products that meet the unique needs of the customers you want to attract will certainly offer more than what is on the market. Attractive insurance benefits creates incentives for onboarding new paying customers as customers see more value in upgrading their accounts. Having full visibility on transactions means you can offer damage & theft protection on a high value purchase made at an electronics store, without the need to manually seek receipts. This promises security and more than what a traditional bank can offer. For 83% of customers believe a banking model must offer a strategic focus on serving its ecosystem, rather than simply making use of it. Fulfilling the customer journey with digital touch points throughout the insurance cycle, as in the case of claims submissions, will also forge strong customer connections, build trust and drive growth.


Incremental revenue benefits of selling insurance


Converting customers into insurance policyholders represents substantial continuous revenue from the moment of first sale, on renewal and for upgrades. In cases like smartphone insurance, the commission earned from the underwriter can even end up being more than the asset itself as insurance is usually subscribed for the long-term. Whether insurance is provided on a marketplace or as an add-on, because insurance goes hand in hand with money management and introduced at the Point of sale or time of service, conversion will likely be high. Earning revenue is now more important than ever considering that “Investors are pushing the fintech challengers to demonstrate that they’re able to monetize their products”.


From the outset neobanks have an unprecedented advantage over the customer experience which if used to leverage insurance products, will result in the most profitable benefit within their financial ecosystem.


  • Unfair advantage on customer data


Unlike traditional banks, which have a complex technological legacy, neobanks have a powerful database that is easy to exploit from the outset. Because their platforms are also highly modernized, it becomes easier for them to collect and analyze data and understand how their customers behave in the financial ecosystem. With this great advantage, they are able to offer the most complimentary insurance product to the customer at the right time using observations on the customer segments they have created. For example, encourage salary deposits with an income protection insurance product or more card swipes at stores with purchase protection. Using strategic decisions on the multitude of data will convert customers to an insurance product that they actually need.


  • Neobanks are 100% digital and have a modular architecture that allows for new capabilities


The digital banking platform is a robust omnichannel framework that allows the implementation of API gateways to accelerate digital innovation and new financial integrations. Using these public APIs, neobanks can trigger functions such as producing quotes, issuing policies and generating insurance documents without having to build the functionality themselves while being 100% native. This structure allows for quick implementation of an insurance solution that is more tailored and native to their customers.


The differences of Neobanks vs Digital banks



Habit technology is changing the way insurance is sold and for neobanks there are 3 ways to sell insurance which to an extent can also operate simultaneously.


  1. Embedded/ bundled subscribed into the overall cost of card plan

  2. As an add-on purchase

  3. Launch a marketplace of insurance accessible products


Embedded

Bundling insurance into the subscription plan as a way to enrich benefits and entice new customers. This would result in a 100% conversion rate of insurance policies but part of the cost of the insurance would have to be subsidised by the neobanks. Profit margins would have to be carefully analysed but enabling a simple way to extend policy features and upselling extra coverages from here would certainly fuel profit to the insurance solution.


As an add-on purchase

Triggering insurance at the right time as a standalone offer would mean more revenue per insurance policy to the neobank. Conversion rate will be dependent on how relevant the insurance is to the customer at that given time. For example, when a card purchase is made on a high value electrical item, a trigger to simulate an alert or notification would introduce damage & theft protection for that purchase.


Launch a marketplace of insurance accessible products

An omnichannel experience where customers can access a whole-of-market financial platform to buy and manage their insurance alongside any other third party service providers. In doing so, neobanks will service a far wider segment of customers than a traditional bank as they strive to become the centre of solving the wider customer need. Habit enables one single interface for all insurance products natively into any mobile app.


Habit mobile webview for hosting various types of insurance products



How can Habit launch Insurance to neobanks seamlessly?


Truly digital insurance products will monetize neobanks because it composes the two most important elements of customer affinity and a new revenue channel, as mentioned by Tom Merry, managing director of banking strategy at Accenture“; “If the neobanks are able to turn great customer affinity and numbers into revenue growth whilst maintaining their cost advantage, profitability will follow”.


Habit APIs


Using Habits lightweight APIs means an end-to-end digital insurance experience can be integrated seamlessly without interruptions to existing platforms, natively and at any point of the customer journey. Integration work is completely offloaded as is the cumbersome insurance regulation necessary to sell insurance (Habit as insurance mediators).


Habit insurance products


Habit partners with key global insurers to build the most tailored insurance products to the customer along with commercials and commissions that reflect confidence on the insurance solution we have built.


Habit Tech enabler


Use Habit’s capabilities to segment customers and send post-sale triggers and reminders (through what we call the “Business Rule Engine”) and technology for powering the end-to-end digital insurance experience - neobanks will find their niche and prompt the right insurance product at the right time at a scalable minimal cost to the neobank.


At Habit we believe that neobanks are empowered with an infrastructure of autonomy and execution to sell insurance products in whichever way they see fit, without the need for excessive governance structures.

''Now, neobanks are under tremendous pressure to show they mean business. Investors are pushing the fintech challengers to demonstrate that they’re able to monetize their products, and eventually make a profit. Experts say the space is ripe for some consolidation''.


Are you a neobank or digital bank that wants to explore how insurance products can significantly contribute to growth and customer affinity?


Feel free to Contact us and have a demo of Habits solution for a faster go-to-market insurance launch and accelerate your business using Habits affinity insurance solution.



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