The Rise of Neobanks: An Analysis of the Disruptive Potential of Neobanks in the Swiss Banking Sector

Abstract

The financial crisis of 2008 fundamentally changed the way how banking is done and how it is regulated. This opened the way for new entrants – FinTechs – to improve or even disrupt the financial services with their innovative technologies and business models. And with that, a new species of banks came into being – Neobanks – that offer financial products via digital means and provide banking services without a branch network. These novel all-digital banks have received a significant amount of media attention and the term ‘disruption’ frequently emerges in association with them, creating the notion that Neobanks will disrupt or are already disrupting the established banking sector.
This paper explores the disruptive potential of Neobanks as well as the responses of incumbent banks using the ‘Disruptive Innovation Theory’ developed by Clayton M. Christensen (1997). It, therefore, contributes to the correct use of the disruptive innovation terminology, preventing future research in the field being biased with wrongly identified disruptive forces. The illustrated situation is explored as a case study where the disruptive innovation framework is applied to the case of Neobanks in Switzerland as the banking nation in Europe with a longstanding tradition in financial services. Data is gathered following a content analysis of the annual reports of the five biggest incumbent banks in Switzerland as well as through an interview with a Swiss Neobank. The results suggest that Neobanks in Switzerland can’t be considered disruptive yet and that incumbents are following a sustaining strategy when dealing with new technologies in the age of digitalization.