Neo banks

Neo banks are online only financial technology companies that have no traditional bank branch.

Features

• Partners with incumbent licensed banks to offer specific banking services such as deposits, cards and payments etc.
• They are not present physically.
• Customers can easily sign up for accounts on their website/App and use their services.
• Gets investment adviser licenses for wealth management.
• No formal regulatory license for neo banks in India.

Difference between traditional bank and Neo banks

• Digital- As mentioned earlier, Neo banks are completely digital, while traditional banks have physical branches coupled with online banking services.
• Licensing- Traditional banks are fully licensed and chartered, while very few neobanks have banking licenses. To ensure their products, neobanks usually partner with traditional banks.
• Low cost- Neobanks charge very low fees for their services while traditional banks tend to overwhelm customers with various types of complicated fees.
• Services- Neobanks typically offer checking and savings accounts, money transfer and payment services, and some financial education tools (e.g., budgeting apps). Traditional banks offer more services, including lines of credit, financial advisors, credit cards, investing, and more.
• Relationships- Traditional banks place a greater emphasis on building deep, long-lasting relationships while neo banks tend to have mostly flexible, short-term contracts and relationships.

Benefits

• Better consumer experience- Neo-banks ensure a seamless online experience by incorporating a digital and experiential layer on top of traditional banking.
• Tech-driven- customers can easily sign up for accounts on their website/App and use their services.
• Enhanced service experience-Neo-banks bridge the gap between traditional bank services and digital customer expectations.
• Lesser transaction costs-Since they're online only, customer fees are much lower.
• Customer focused solutions-Customer-focused neo-banks offer personalised technology-powered services.
• Data analytics-They can track and analyse neo-banking customer activity better due to their advanced platforms.
• Quick International Payments: Traditional banks may not issue global debit cards. Neo-banks makes cards compatible.
• Manage finances-Neo-banks lets you track your spending and set a savings goal. This improves financial management.
• Business friendly- Easy business loan payment and disbursement without complicated processes.

Issues

• Poor data architecture—disintegrated data storage requires consolidation to improve user experience.
• Organizational resistance—it may threaten traditional banking.
• No cutting-edge technology = no R&D investment.
• Digital divide—53% rural broadband coverage—may neglect rural market.
• No branches—customers may have trouble getting help.
• Financial data theft, cyberattacks, etc.

Conclusion: Neobanking can enhance financial inclusion efforts. Neo Banks have the potential to disrupt banking and financial services, but to become profitable, they must convince traditional banks to invest in new technology and re-engineer processes to provide seamless and fast customer experiences.