NeoBanks- New era of Banking
A traditional bank as we know is heavily dependent on physical branches to interact with people. Traditionally branches have been the banking jamboree for all banking experts, and customers visit branches to perform their banking activities.
The continuous increase in prices of real-estate limits banks to reach faraway places, and hence the limit to the number of customers they can on-board. With the advance in digital technologies, banks have adopted digital banking to cater to different channels like mobile, web, or other channels.
As Jack Ma said, scaling up with physical branches is a tough thing, a lot of banks are now depending upon digital channels to gain more customers.
NeoBanks are new-age banks, which take the above phenomenon to the next level. A NeoBank is a bank that is one hundred percent digital, and do not own any physical branches. This saves them a lot of investment in physical space and helps them reach new customers just with an increase in server power.
A NeoBank is accessible only via the internet. You cannot drive to a NeoBank since it doesn’t have a real presence on earth. However, if you have proper access, you can reach its servers.
NeoBanks attempt to fill the gap between customers and traditional banks by providing banking services using advanced technologies. This enables NeoBanks to reach unbanked people and bring them under the banking umbrella. NeoBanks use cutting-edge technologies e.g. AI, ML, and recommendation engines.
The startup movement in this space began around 2004 and assembled pace after 2011.
The term NeoBank was first noticed somewhere around 2016-2017 in India. This was the time when demonetization happened in India and the traditional banks were failing to cater to the needs of Indian customers.
One of the private financial companies: PayTM gained its banking license to become a NeoBank and cater to payments banking. PayTM excels in peer to peer money transfers and was smart enough to reach customers pan India.
In India, Banking policies are governed by RBI. And at present, it doesn’t allow a banking license to any neo bank. As a workaround, different approaches are being taken by different banks. e.g. PayTM has opened a single physical branch to get a banking license. Niyo bank on the other hand is providing services by extending IDFC First Bank’s licenses. There are other FinTech players e.g. Cred who depend on credit-card providers to service the credit card holders by providing a bill payment facility.
Modern society needs systems that are fast and can perform actions just on-call or click. This makes NeoBanks more favorable and widely acceptable by the young society. NeoBanks provide easy-to-use, fast and innovative applications that are loved by Millenials.
Being a purely digital bank enables NeoBanks to become data-rich and eventually take additional advantages of AI and ML to further improve the user experience. Having enough data allows the banks to analyze the spending of the customers and provide offers that assist customers to have more control over their finances and investments.
I have observed that unknowingly, I and my friends have started banking more on NeoBanks as compared to the traditional banks. Given the convenience they provide, NeoBanking is the way to go. Below are the points why I love NeoBanks more than the traditional banks
- Ease-of-use: The apps of NeoBanks cover all aspects of day to day banking since they have no other option apart from digital banking, you can perform all the actions on your mobile application in the comfort of your home. While this is possible for traditional banks as well, the apps of traditional banks do not provide all the features e.g. changing mobile numbers or updating addresses, and depend on branches to do the same thing, just because they can have a branch as a fallback, they fall-back to the branches.
- Better Insight: Modern digital banks provide me better visualization of my investments, and show me visually how much should I save to reach my goals.
- Easy Money Transfers: I can send and receive money, pay bills, purchase online and a lot more, just at the click of a button. This easy can never be provided by the queues in branches.
- Reminders: Fintech players like cred give timely reminders to make credit card payments and save me from becoming defaulters and paying additional charges.
- Peer to Peer: Google Pay and PayTm allow me to transfer money to my friends and are helping India to become a truly cashless (at present less cash) society.
The point to note here is that NeoBanks is not providing any new services. But NeoBanks are disrupting the way of Banking. NeoBanks are selling the same products and services which traditional banks do, but with the help of digital technologies, they have improved experience and customer reach.
What makes Neo Banking different from Traditional Banking —
1) Lower fees:- NeoBank does not have overhead costs e.i. running the physical branch, high labor cost, running ATMs hence offer more interest rates and low charges to their customers. which is the overhead cost for traditional banks, Hence these banks charge customers for the same.
2) Specialised and value-added services:- NeoBank working on very specialized services to specifically targeted audience e.i. Students, SMEs, small manufactures, etc. As NeoBank using AI and ML, NeoBank knows which customers looking for what, So they offer specialized services to their specific customers. on the other hand in the traditional banks offer services to all customers rather than a specific targeted audience which makes limited products and services offered by them.
3) Banking experience:- Due to the latest technologies, AI, and ML. NeoBank changing the way the customers think Banking works. For example, Neat is a NeoBank that offers multi-currency accounts for their SMEs. But this is not possible with traditional banking.
4) speedy services:- Opening an account with a traditional bank is a very long process sometimes it may take a couple of days where you have to visit branches multiple times where NeoBank, Opening an account is a couple minutes job.
The Tech Circle report suggests that 22% of Indian adults are already operating on some form of Neo Banks, and I believe that this number is going to increase with time, as the neo banks will improve their robustness and provide better services.
