Neo-Bank is a digital bank without having any physical branch network carried out business entirely through online mode. Neo-Banks can be called Fintech firms that provide digital and mobile-first financial solutions payments and money transfers, money lending and more. These banks don’t have a bank license of their own but count on bank partners to provide bank licensed services.
As the financial landscape is shifting towards customer experience and satisfaction, a gap has developed from what the traditional banks offer to what customers expect. And, Neo-Banks are making an attempt to fill that gap by offering higher interest rates and lower fees.
- Business perspective:
- The Cost of operations and management gets reduced.
- Customer demands are met with an enhanced customer experience.
- Additional resources get invested in launching new products and in expansion to different geographies. This also helps facilitate doorstep delivery of essential banking services to rural India.
- Customer perspective:
- Financial transactions become easy and convenient to perform from any location at any given time.
- With a greater reach and equal opportunities for all the people, everyone gets to avail all the banking facilities.
- Standing in queues with a token in hand is a thing of the past and now services are available at the click of a button.
- The Features of a Neo-Bank:
An account with a neo-bank can be opened in less than 10 minutes with minimum paperwork, and will get a virtual debit card for use immediately. Additionally, access to global investment opportunities, easy international student banking and low-cost global spending etc are immediate services of a neo bank. The key features are:
- Value proposition: One might ask why someone who’s been banking the traditional way for generations switch to a neo-bank? Their USP lies in their unparalleled value propositions, with speed and convenience heading the list.
- Convenience:Each of us would have had at least one traumatic experience in a physical bank with financial transactions — long queues, unending paperwork, multiple signatures, bank holidays etc.
- Service: Neo-banksmake life easy by offering consumers a hassle-free banking experience at their fingertips through a mobile app that gets their work done quickly and efficiently for them, irrespective of where they are placed in the world. Accounts are opened in 10 minutes after primary documents are furnished, and a quick KYC form has been filled.
- Cost:Since their inception, neo-banks have been known for their cost-effective benefits compared to traditional banks. Considering these banks do not have any physical branches, the operational and labor costs are next to nil. Customers don’t have to pay any fees for opening an account with us — no account opening fees, monthly fees, wire fees or minimum balance requirement is mandated.
- Financial Management:Neo banks leverage technology combining deposits, loans, debits, and credits all at one place with access to everything through just one tap on the mobile screen. Transparency is key to their success as they keep consumers apprised of their account status in real-time, even offering personalized advice on the best investment options.
- Personalization:Neo-banks leverage technology and artificial intelligence to offer consumers a personalized service experience while minimizing operating costs.
- Seamless multi-product:Offering a multi-pronged set of services, a digital neo bank is a one-stop-shop for availing borderless and efficient banking facilities. The suite of seamless services includes safe, easy and compliant borderless banking, Hassle-free transition to the functioning corridor for work, access to global investment opportunities, easy international student banking, low-cost global spending and so on.
- Simple and User-Friendly Interface:With superior technologies, neo-banks provide an enhanced customer experience. The applications and websites are very responsive, unlike that of the traditional banks where the net-banking websites are often filled with glitches and the mobile applications lag many times.
- A boon for MSME’s:The process of disbursals to vendors and other stakeholders is long, tiresome, and sometimes a bit tedious. Neo-banks bring in simplicity; demystify the entire process by reducing the manual efforts required, and by providing unified platforms to monitor the money movement. Not only are this, other services such as taxation, budgeting, and accounting to MSMEs also rendered at low costs.
- Benefits of Neo-Banking:
Advancing to a more technologically sophisticated way of doing things, it goes without saying that the benefits long outweigh the costs. Similarly, Neo-banking as a technological by-product aims to make life easier for the customers of a bank. Neo-Banking has the following benefits:
- Neo-Banking enables consumers to perform banking functions from the comfort of their homes, be it an elderly person who is tired of waiting in lines or a working-class professional who is caught up with work, or a regular person who does not want to visit the bank’s branch to run a single errand. It also offers convenience.
- Elaborating on the convenience offered, Neo-Banking lets a user carry out banking work around the clock, with 24*7 availability of accessto banking functions.
- One of the biggest drawbacks of traditional banking was the overly placed importance on paper. Banking has become paperlesswith the development of Neo-Banking as a service. A user can log into their account at any point in time to monitor records.
- Neo-Banking allows a user to set up automatic paymentsfor regular utility bills such as electricity, gas, phone, and credit cards. The customer no longer has to make a conscious effort of remembering the due dates. The customer can opt for alerts on upcoming payments and outstanding dues.
- Online shopping has become a cakewalk with payment channels becoming well-integrated with the online shopping portals.
- Neo-Banking can extend services to remote areasis seemingly a step toward holistic development. With smart phones at affordable prices and internet access in remote areas, the rural population can make the most out of banking services.
- Neo-Banking enabled fund transfers reduce the risk of counterfeit currency.
- By promoting a cashless society, Neo-Banking restricts the circulation of black moneyas the Government can keep a track of fund movements.
- What Factors can contribute a Neo-Bank to Fail?
- Regulatory and compliance factors can become primary reasons for Neo-Banks to not succeed in the financial space. For example, in India, the banking regulator RBI has not yet granted a banking license to any independent company to solely act like a bank without a branch.
- The products offered by Neo-Banks are generally fewer. Sometimes due to administrative complications, Neo-Banks are unable to offer mortgages and other lending facilities.
- Neo-Banks do not offer the core banking facility and hence, HNI customers, who prefer to do business in person are not attracted to this kind of bank.
- While Neo-Bank has become a buzz word and a fascination among millennial, it is still not being used by large masses because of safety and security concerns.
- As the differences in business operations, the business model of Neo-Banks too is quite different from that of a traditional bank. Artificial intelligence with the help of data analytics mainly drives the decision-making process.
- Data privacy is a significant concern for any institution with technology at its helm. Given that Neo-Banks rely heavily on customer data with the possibility of cross-sell products staying afloat, failures and frauds is a cause of concern.
- Prominent Neo-Banks:
|Name of the Neo-Bank||Services Rendered|
|PayZello||Uni Cards, Forex Cards, Loans, and Money Transfer, Account Opening, Virtual Debit Card, Expense Management|
|InstaDApp||Smart Contracts, Crypto Currencies, and Other Block chain Assets Deposit Account, Decentralized Asset Lending and Borrowing|
|FinHealth||Credit Payment, Banking, Payment Solutions, and Remittance, Goal-Based Savings, Consumer Durables, Gold, Health Care, and Government Benefits|
|Niyo Solutions||Foreign Exchange Card with Savings Account, Employee Benefits System, Travel loans and Early Salary Advance|
|Open||Automated Account, Current Account, Payment Gateway, Cash-Flow Management, Tax, and Compliance Management Solutions|
|Razorpay X||Payments, Current Accounts, Cheque Book, Cheque Book, Credit Card, Payroll Management, Customer Relationship Management|
|Walrus||Payments, Savings, and Debit Cards|
|Forex-Kart||Forex Services, Multi-Currency Foreign Exchange Card, Traveler Cheques|
- Scope and Growth in India:
- In 2022, the penetration rate of Smartphone’s in India reached 58 percent and was estimated to reach 96 percent in 2040, more than doubled from the financial year 2016, when only 22 per cent of the mobile subscribers were using a Smartphone’s.
- With the Smartphone’s penetration in India set to grow multifold in the coming years, there is a vast scope of growth for Neo-Banks in India. Neo-Banks target three main classes of customers:
- The high-end consumers are always on the lookout for a better seamless experience that aligns across all their digital touch points, be it an Apple, Amazon, Facebook etc.
- The under banked customers who don’t have access to quality banking and have unstable, irregular incomes yet can benefit from a digital financial platform.
- Customers with special needs, such as independent contractors, freelancers, Uber, Ola drivers, etc., may need very short-term loans to smoothen their cash flow.
- In India, MSME’s account for about 95% of the country’s industrial units but have not been covered by conventional banks. Neo-Banks give this MSMEs access to financial services through a formal banking and credit system.
- The prime factor driving the growth of Neo-Banks in India is that traditional banks are yet unable to offer the range of services they offer safely and effectively on a digital platform. Going ahead, Neo-Banks are only going to get bigger and better with improvements in technology. Already Neo-Banks have real-time data and lego-blocks like architecture, making it very easy to roll out new features and products.
- What is interesting is that it is the customers that are driving this wave of change in the business of banking as they become more demanding about the experience and the value, they expect from their banking experience.