While many traditional online banks are still struggling with outdated core systems, neo-brokers have long since embraced cloud technology, open interfaces, and automated processes. They are trading while others are still debating. Why many traditional banks are still talking about "digital transformation" even though they have long since missed the boat. A critical commentary on the status quo by Karl im Brahm, CEO of Objectway DACH.

The financial industry has experienced a significant divide between the first wave of online banks in the 1990s and today's neo-banks and neo-brokers

While early online banks successfully digitised traditional services, they largely failed to adapt to the technological and business model innovations that define modern financial services.

The reasons for this are obvious: outdated infrastructure, rigid business models and the failure to meet changing consumer expectations.

“Yes, the outdated infrastructure is the burden of the early online banks.”

First-generation online banks were built on the foundation of traditional banking institutions by simply extending existing services to digital platforms. However, they remained limited by outdated core banking systems that were not designed for real-time, API-driven financial ecosystems at the time. This legacy infrastructure continues to pose a major obstacle, making the integration of new technologies such as cloud computing, AI, and open banking costly and complex.

Without the burden of legacy infrastructure, Neo players can iterate quickly, introduce new features, and adapt to market demands with unprecedented speed.

The starting points are different. While online banking was initially met with great caution, trust in digital transactions and solutions has since increased – a shift that neobrokers have embraced.

In the late 1990s, skepticism toward online banking was high, and physical branches remained the preferred access point. Digital transactions were slow, mobile banking was nonexistent, and trust in purely online financial institutions was limited.

However, today's consumers demand seamless 24/7 access to financial services with a mobile-first experience. The rise of digital payments, contactless transactions, and self-directed investing has fueled the success of neobanks and neobrokers. Their intuitive, app-based platforms are perfectly aligned with the expectations of a generation that demands real-time financial control at their fingertips.

Branch networks are expensive. Whether they pay off is questionable

First-generation online banks often digitised traditional banking business models without rethinking their cost structures or revenue streams. They maintained expensive operating models, including legacy software and physical support structures, limiting their ability to compete on costs and scalability.

“Unlike first-generation online banks, neo-banks eliminate costly branch networks, automate processes, and rely on lean, freemium-based models.”

They monetise through premium services such as crypto trading, ETF investments, and personalised wealth management solutions, making them not only more competitive but also more financially sustainable in the long term. Traditional banks that rely on comprehensive financial packages are often at a disadvantage here. To compete effectively, banks should consider diversifying their offerings and developing more flexible pricing strategies. For example, they could split services to meet specific customer needs. This approach could involve offering services separately to better address the needs of specific customers or groups. This increases their attractiveness in a market that increasingly favors personalised solutions.

The early online banks were cumbersome – neobanks, on the other hand, share their expertise transparently with investors and turn it into a completely new service: financial education.

While early online banks were functional but somewhat clunky, today's neo-banks and brokers have mastered the art of customer engagement. Their apps are equipped with seamless navigation, gaming features, real-time insights, and community-based solutions. The goal: to offer investors the opportunity to improve their financial knowledge while encouraging frequent interaction.

“This shift from simple transaction banking to an engaging financial experience has played a key role in their adoption and success.”

Instead, traditional banks often struggle with cumbersome and outdated user interfaces and digital channels, leading to customer dissatisfaction and churn. There is no getting around it: traditional banks must invest in revamping their digital experience channels to meet modern expectations.

Regulation as an obstacle? Not at all! Neotraders use compliance as a tailwind

In the 1990s, regulatory frameworks were largely tailored to traditional financial institutions, limiting innovation in digital banking. Today, regulatory advances such as PSD2, open banking, and embedded finance have created an ecosystem in which fintech firms can grow faster. Neobanks are leveraging these frameworks to offer more comprehensive, more personalised financial solutions—including alternative assets such as cryptocurrencies and fractional shares—further increasing their competitive advantage.

Traditional banks need support in their transformation

For traditional banks, there is no one-size-fits-all solution for digital transformation. The right strategy depends on a bank's ability to modernise its legacy systems and seize new opportunities. Choosing the right partner for digital transformation is crucial. A good digitalisation partner should help the bank move beyond offering individual products to supporting customers throughout all phases of their lives—for example, during asset accumulation and asset reduction. Separate areas should collaborate more effectively, and all technical solutions should be consolidated on a common platform.

Equally important is the innovation of investment proposals.

The right partner can provide access to "digital asset structures" and alternative asset classes, tap into new sources of liquidity, and support sustainable investments. It is also important to develop new investment ideas.

A good partner can help make digital investment opportunities and alternative investments accessible. They can also identify new sources of funding and promote sustainable—and environmentally friendly—investments. Furthermore, a transformation partner should facilitate cloud adoption and digital infrastructure upgrades so banks can benefit from intergenerational wealth transfer and longevity-focused financial planning.

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