Are Neobanks Really The Future of Banking?

In this fast-pacing era where really nobody has the time or the interest to walk over to a bank branch to do banking or business, “Neobanks” are a change and, in a good way, but are they really a promising future? Let’s find out.

What is Neobank?
Difference Between Neobanks and Traditional Banks
What Do The Neobanks Offer That Traditional Banks Don’t?
How Does Neobanks Work?
Are Neobanks The Future of Banking?
Pros and Cons of Neobanks
FAQs

What is Neobank?

Neobanks are financial institutions or digital banks that exclusively operate online and do not have any physical branches. Neobanks provide services and products that are not found in traditional banking systems and are also, very efficient. They work either directly with service providers or with already established banks as they don’t have regulatory licenses, in the Indian context. Neobanks are a wide umbrella of financial services such as faster deposits, transfer of payments, credit cards, etc.

Neobanks had a customer base of around 7.7 million in 2018 and nearly tripled it to 20 million in 2020. In 2019, in India alone, Neobanks raised a big amount of 90 million dollars. And are expected to raise an amount of 394 billion dollars globally by 2026, according to reports of lead squared. Globally there are more than 200 Neobanks and more than 10 in India and the numbers are rapidly increasing.

In India, the growth of Neobanks are not that fast compared to the growth around the globe, but looking at how vast the Indian Market it can take over by a storm.

Difference Between Neobanks and Traditional Banks

• Neobanks mostly press on solving banking issues faced by customers but lack in better overall customer experience.
• The onboarding process of Neobanks is very simple, paperless, and less time consuming compared to traditional banks.
• Neobanks are beneficial for small businesses whereas traditional banks prove to be very useful to millennials.

What Do The Neobanks Offer That Traditional Banks Don’t?

In the past few years, there’s a lot of change in the finance industry and with the introduction of UPI in India, which recorded over 4 billion transactions in October 2021, and the mobile wallets in the US and Europe we have seen tremendous amounts of transactions digitally.

Neobanks use innovative new technologies such as AI, Cloud analytics and for their audiences, they are merely an app, unlike the traditional banks which rely on financial products and expand their large network of branches for the customer base.

Neobanks mostly come in handy to the people who do not have much time to handle the hassles of visiting physical branches and have a busy living. They are way different than other financial institutions in certain ways such as,

• Reduced timeline of acquiring customers and provide seamless customer services and paperless operations
• Removing the challenges that are faced in the traditional banking system and thus, providing a brilliant user experience.
• They have fewer regulations and are easy for customers to set up their accounts and also ensure advanced security and privacy.
• They provide accounts and money transfers, seamless international payments. They also provide better interest rates than traditional banks because of their fewer costs and easy processes.

How Does Neobanks Work?

Neobanks work on the “Banking as a service” module and fix the gap between traditional banks and customer expectations. Banking as a service is an end-to-end process of operation of financial services on the internet and allows digital banks or third parties to connect with banks for better financial and banking services.

They are completely digital and online as there are no physical branches. Neobanks have modernized platforms that help them collect data of their target audience and based on the data collected they customize their marketing strategies accordingly as a result successfully creating a cohort of customers.

Are Neobanks The Future of Banking?

They are changing the face of the Fintech community and one day maybe replace traditional banks but it’s not easy and one can never be sure. Neobanks are mostly like digital banks but remember “mostly”. They are much recognized as companies than banks.

In India, the RBI still doesn’t allow banks to be 100% digital and have some physical presence. The defining and most important reason for this is and the difference between Neobanks and traditional banks is funding and not forgetting customers' trust. Traditional banks may find it hard to compete in this tech-savvy world still the legacy can’t be weighed down so easily.

Pros and Cons of Neobanks

Pros of Neobanks

• Adapting technology and no presence of credit base makes them low cost and convenient for the low-salaried customer base.
• Neobanks are convenient as allow operations through an app from basic banking to investing and other finances.
• Better services and benefits. Quick processing for loans and speeding other requests by ditching paperwork.

Cons of Neobanks

• Limited services compared to traditional banks and less regulated. No physical presence may hinder customers’ trust.
• Keeping up with technology and advancements in trends.
• No physical bank branches and In-person assistance access.

What changes we might see in Banking after the pandemic?

As Technology and innovation has transformed every industry lets take a look at how will it transform the banking industry post pandemic.

StartupTalkyPooja Uniyal

Conclusion

Neobanks have emerged as a buzz wave in the fintech community and have been doing great in maintaining their spotlight on a global level and every day more and more businesses and banks are signing up with them. We see a new player everybody whose intention is to simplify financial services and provide additional benefits with them.

Though it’s going to be hard to revolutionize the whole industry of banking and finance it’s gonna take time and real hard work for tech geeks. As the saying goes, “it's the little changes that make the most important changes”.

FAQs

Are Neobanks banks?

Neobanks are not banks and do not have a bank charter. Instead, these institutions generally partner with a bank to ensure their products. Before signing up with a neobank, make sure it's FDIC insured by a partner bank.

What is Neobank?

Neobanks are digital banks that do not have any physical branches and provide all financial services to their consumers through apps that can be accessed through a smartphone.

Is Neobanks secure?

Money deposited in a neo-banking account is as secure as it would be in a regular bank account in India.

When did Neobanks start?

The term neobank has been in use since at least 2016 to describe fintech-based financial providers that were challenging traditional banks.

Are Neobanks legal in India?

Talking about the neobanks in the Indian context, neobanks are not directly regulated by the banking regulator. This is mainly due to the fact that RBI does not grant licenses for operating virtual banks in India.