Global landscape
The global neobank market was worth USD 18.6 billion in 2018 and is expected to accelerate at a compounded annual growth rate (CAGR) of around 46.5% between 2020 and 2026, generating around USD 394.6 billion by 2026.
Here’s what makes Neobanks, the new top choice for customers.
Neobanks are essentially non-banking service providers with technological prowess; and agile and lean business models. The very fact that Neobanks operate exclusively online, without any traditional physical branch network, gives them a major cost-advantage; allowing them to offer their products and services at cheaper costs, offer higher returns and faster turnarounds.
Their primary focus is on delivering banking services through the internet or other forms of electronic channels. Neobanks are becoming the top choice for small and medium enterprises (SME) as well as micro-retail markets ie. underbanked and unbanked customers; purely because they make it really convenient to open and operate accounts online, facilitate seamless payments, transfers and remittances; and most importantly, offer alternative methods for assessing creditworthiness. What gives Neobanks an edge over their traditional counterparts is the fact that they aren’t constrained by lofty regulatory requirements, complex administrative structures, tightly integrated value chains, and legacy systems.
Same Same but different: Neobanks v/s Digital banks
Neobanks are often confused with Digital Banks. The way they deliver online banking services might seem similar but there’s one fundamental difference. While Digital Banks are the online-only subsidiary of an established and regulated player in the banking sector, Neobanks, on the other hand, exists solely online — without any physical branches and operate independently or in partnership with traditional banks.
Neobanking landscape in India
Between, 2017 and 2020, India’s mobile banking users increased by 13% and 92% in value and volume terms, respectively. But as per the Global Findex Database of 2017, 80% of India’s population remains severely underbanked, which reflects the untapped potential in the country for mobile-based neobanking services.
At present, there are four main Neobanks in India, which have received sizeable funding from investors. Recently, one of Singapore’s largest banks launched its services in India, including savings accounts, fixed accounts, payments solutions, transfers and investment management. The services offered by the bank are completely digital, without any presence of physical branches.
Opportunities for traditional banks to transform this disruption into growth.
Trust and transparency
While Neobanks thrive on agility and efficiency, the traditional banks have “Trust” of their customers as a major asset, owning to tough regulations. The higher levels of equity imposed upon them by regulators ensure they are safe and resilient to a potential crises.
Collaboration
Considering that Neobanks don’t have their own bank licences in India yet, they depend on partners to offer bank-licensed services. Also despite the momentum, most of them are yet to show sustained profitability. Traditional banks can take this as an opportunity to collaborate with Neobanks in order to harness the new-age technology and reengineer their processes to deliver better customer experience.
Experience and offerings
Neobanks currently offer a narrow range of product offerings compared to traditional banks that offer big ticket car loans, home mortgages and business services. The latter can take learnings from the Neobanking service model of swifter and seamless customer service to improve upon their domain expertise before the former catch up.
Financial Inclusion
Taking inspiration from Neobanks, traditional banks can invest in building niche solutions on blue-collar workers and the underserved needs of thin-file MSMEs.
Innovation-first mindset
Traditional banking needs to adopt an innovative mindset instead of simply keeping pace with the ever-evolving digital world. From training senior executives to recruiting digital-first experts, the industry can immensely grow by prioritizing innovative solutions.
The power of Data Science, AI, and Machine Learning
Neobanks are primarily focussed on recognising and serving consumer pain points, frustrations, unmet needs and value adds that traditional banks had a blindspot for. The latter can gain a great deal by listening and learning, harnessing the invaluable customer data and finance behaviour available with them. The need of the hour is to invest in AI and machine learning to be able to proactively help people make better financial decisions.
The bottom line:
Millennials are rapidly migrating to the emerging, mobile-first finance solutions including e-wallets and e-banks . It only makes sense for traditional banks to be on top of their needs by staying ahead of the neobanking revolution.
