Neobanks strengthen customer service to set themselves apart

Neobank users are more likely to feel disgruntled by poor customer service than those who have accounts with full-service traditional online banks. 

Startups may be able to get away with sparse staffing and email-only responses early on, when customer needs are simpler. But shortchanging this part of the team can cause a backlash when things go awry with customer accounts. 

“Customer service has always been a case of, how little can I do and still keep the customers I have,” said Emmett Higdon, director of digital banking at Javelin Strategy & Research. “But as challenger banks expand into more lines of business, and as those relationships get more complicated, they have to ramp up customer service or risk losing those more profitable customers to another provider.”

J.D. Power’s 2022 U.S. Direct Banking Satisfaction Study found that neobank customers report more difficulty in reaching customer service representatives compared with direct bank customers. More specifically, 61% of roughly 6,500 customers of direct banks surveyed felt that it was convenient to reach the support staff, while 47% of more than 3,400 neobank users felt the same. The lag was most pronounced in problem resolution and when service was received by email or secure online messaging.

Interviews with digital banks — or in Varo’s case, a chartered bank with neobank roots — offer a window into their thinking around training, why customer service over the phone is important and when personal touches can make a difference.

“The function originally setting challenger banks apart is a yawn right now — everyone is throwing overdraft fees out the window — so one way any bank can differentiate itself is with excellent customer service,” said Higdon. 

Varo Bank, in San Francisco, started with email as its sole customer service channel because it was the simplest to set up, but expanded to voice within a year. The ability to reach a human rather than relying on automation, especially chatbots as the primary means of support, “starts to separate the more mature players in the space,” said Higdon.

Tamara Lewis, head of customer operations at the $649 million-asset Varo, points out that being able to reach a representative by phone is important because customers are often trying to get in touch for urgent reasons. Resolving problems is typically faster on the phone and this reveals systemic issues and enables representatives to submit feedback more quickly.

“Voice differentiates us and allows us to serve different types of customers, even those who aren’t digitally savvy and even though we are a digital bank,” she said.

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At the end of December, Varo added online live chat, meant as another form of contact for urgent queries. Lewis said that being regulated by the Office of the Comptroller of Currency has pushed the company to have higher standards for service.

That brings up another point: Customer support is not just about the number of channels, but the level of service.

“Just because you have a customer service number doesn’t mean you are properly staffed for it,” said Higdon. “There is only so long you can get away with saying, ‘Our call volumes are unusually high right now.’ ”

Varo’s service level agreement for live chat is to answer queries within three minutes and emails within 24 hours. Lewis said Varo has been mostly hitting that target. Voice, which also has a target of answering within three minutes, varies more, but Varo has been meeting that target about 80% of the time.

Its customer support team comprises about 200 people internally, with teams dedicated to each of the three channels. Varo will outsource some customer service to an outside firm during busy times of year, such as tax season. Varo chose Sitel Group, despite that company’s higher costs, since they are known for working with “highly regulated financial services companies,” Lewis said. “It was important for us to have staff that come naturally understanding regulated environments.”

Lewis said Varo will follow customer preferences. Originally, about 70% of queries came through the phone while 30% were made via email. Since chat was introduced, that divide is roughly 60% phone queries, 20% email and 20% chat.

“If we get to a customer base that loves chat and wants to use it, we will grow chat and shrink elsewhere,” Lewis said. 

NorthOne, a small-business challenger bank headquartered in New York, offers live chat, email and phone, all with agents located in North America. Those hired typically have a technical background and receive three months of training from NorthOne. Over time, they graduate from answering simple queries, such as looking up a transaction, to addressing more complex needs. Customer support employees are divided into pods of about five to eight agents under a lead. 

“It’s an investment we’ve made,” said Eytan Bensoussan, NorthOne's CEO. “We decided it is such an important part of what the banking value proposition means for a small business that it was worth going the distance and thinking of it as a real big prong of our strategy.”

Rather than calling a number directly, customers schedule a time for a NorthOne representative to call them.

“We were inspired by the Apple Genius Bar,” said Bensoussan. “We don’t want people to be waiting on hold.” The goal is to get people a phone appointment the same day they inquire.

Before an agent ends an interaction, they categorize it by choosing themes from a drop-down menu. The company also tracks and tags data from these interactions to figure out what larger problems need solving (and would subsequently cut down on customer service queries). For example, initially, a customer wasn’t given a reason if they received an error message when depositing a check, leading to a large volume of complaints. NorthOne improved the language so error messages would be accompanied by an explanation, such as “not endorsed.” Inbound questions about the issue went down to nearly zero.

Sometimes, a challenger bank finds that in-person help is beneficial, even without branches.

Majority, a challenger bank for immigrants that launched in 2019, has phone and live chat support in its app. But the neobank also provides meetup spaces in Houston and Miami where users can consult with advisors who are from the communities Majority is targeting in those cities and speak their languages, such as Colombian and Cuban immigrants in Miami and Central African immigrants in Houston. These advisors can also help them begin using the app.

“Some companies come into a community, want to sell something, put up a booth and leave,” said Magnus Larsson, CEO and founder of Majority. “For us, it was fundamental to be in our different communities.”