Banking Finance 2023, Banking Finance March 2023

Challenges and future of Neo Banking in Indian Banking Industry – A way Forward

Challenges and future of Neo Banking in Indian Banking Industry – A way Forward


1.Dr.S.Amudhan, 2.Dr.J.Poornima, 3.Dr Pacha. Malyadri

1Assistant Professor, Department of Management, St Jospeh’s University, Bengaluru, India – 560027

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1Assistant Professor, Department of Profession Accounting & Finance, Kristu Jayanti College (Autonomous), Bengaluru, India

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3Former Principal & ICSSR Senior Fellow, Center for Economic and Social Studies, Hyderabad

 [email protected]



Neo Bank has acquired popularity recently as a result of its introduction into the financial technology market. If one wishes to characterise Neo Banks, they can be described as Banks with no physical presence who exclusively communicate with their customer base online. The phrase combines the words artificial intelligence and information technology. A Neo Bank’s main goal is to give its clients a flawless online banking experience.

As a result of the loss of confidence in the established banks during the global financial crisis, neo banking business models spread around the globe. In 2015, it reached adulthood in markets like the UK, where it has since grown up. There appear to have been three distinct forms of these “challenger banks” (so-called since they appeared in the wake of the global financial crisis).

The article focuses on neo-banks and online marketplace lenders as two subsectors of the Fintech industry. While online marketplace lenders seek to exclude traditional banks from the credit-processing chain, modern banks offer low-cost deposit services to customers. Both categories of newcomers assert that their aspirations will transform the financial sector by “disrupting” long-established conventional commercial banking business models.

Neobank is still a name that many people in India are unfamiliar with, but this is soon likely to change as Fintech investors and some major entrepreneurs are becoming interested in it. Because of its customer-centric approach to service and the entry of players like NiYO and YONO, India will soon be emerging as a playground for Neo-banks.

Although tech-driven start-ups have also lately entered the banking industry, these “neo-banks” or “challenger banks,” as they are more commonly called, have little to no physical presence and instead offer all services through their apps and websites. They are formidable rivals in the field of digital banking thanks to their sole dependence on technology, but this could also introduce new dangers. Monzo, Revolut, and Starling Bank in the UK, as well as Chime, Simple, and Varo Money in the USA, are examples of these types of fintech businesses in this field.

When compared to traditional banks, neobanks offer all the same services, including checking and savings accounts, payment and money transfer services, loans for both individuals and businesses, and other services like assistance with budgeting. These neobanks first appeared around five years ago, specifically in the UK thanks to Fintech players. Some neobank start-ups go through the process of becoming chartered banks. With their universal banking model, which features low cost structures, feature-rich products/services, and simple accessibility, neobanks have begun to disrupt the banking industry’s virtually uncontested harmony.

In India, neobanks and the majority of their product offerings are not subject to government regulation. To ensure that their product offerings correspond to the regulatory standards, they are nevertheless subject to indirect regulations (via their relationships with regulated organisations). To guarantee that the sector matures further, it is imperative that rules change gradually in tandem with the development of the industry. With the introduction of new business models and goods, the neobanking industry is becoming more stable. As a result, the sector may need its own rules to keep an eye on the market.

In this case, incumbent banks are replaced by new technology-driven banks (e.g., “neo-banks”) with full-service “built-for-digital” banking platforms since they are unable to withstand the wave of technology-enabled disruption. Examples of these banks may be found all over the world, including Atom Bank in the UK, Bunq in the Netherlands, WeBank in China, and Varo Money in the US.

Objectives of the study

  • To study Neo Banking system in India
  • To explore Challenges and future of Neo Banking in Indian Banking Industry

Salient features of Neo Banking

            Account Creation

The creation of accounts is one of Neobank’s key functions. Users must enter their first and last names, Social Security number (SSN), email address, and password when creating an account.

Single Screen Transfers
            Any banking app’s ability to facilitate user money transfers is key to its success. Therefore, implementing a single-screen transfer facility would be wonderful. It guarantees a better user experience.
Multiple Payment Options
            The simplest approach to incorporate numerous payment alternatives is through third-party API integration. You can incorporate P2P, A2A, ACH, and other channels.
Streamlined Processes
            Do you believe that neobanks are popular? The only justification is that, in comparison to conventional banking apps, this process is more frictionless. The best examples include free account opening and synchronising ATMs with international networks.
            The Neobanking app getting this feature will be amazing. Users have access to a map of all the ATMs nearby, making it easy for them to find one anytime they need one.
Transaction Tracking
            Users must be able to view all transactions, including the history, in a single window. The name, bank account, transaction account, currency, and other details of the beneficiary can all be included.
Customized UX
            The user experience is more important than anything else, so it is fine if you implement the app. Users engage with your app while using it, thus it needs to be a great experience for them.
The technique of gamification uses procedures in an intriguing way. Gamification in this context indicates that users can customise their accounts. Your Neobanking app will benefit from increased client loyalty and engagement.
            Biometrics verification and validation features are present in the majority of modern apps, reducing cyber dangers. The majority of Neobanking customers are young people, and they like simple login and signup processes that prioritise face or fingerprint identification technologies. It will be advantageous to add it to your account.
Real-time Fraud Detection
For all sorts of banking apps, the fraud detection mechanism is crucial. Neobank app development may be a novel idea, but it is still important. It will make it easier to recognise legitimate users and spot any fraudulent activities.
            Fintech applications and e-wallets are closely related. Instant payments are made simpler for customers via e-wallets. From a security perspective, it is a fantastic choice to add in your Neobank app. Here, you may benefit your business by fusing the creation of e-wallet applications with Neo banking.

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