What is Neo banking?
World has just heard a new word added in the domain of Fintech is Neo Banking. This word recently grabbed the attention of every person in the world of Fintech investors and Enterpreneurs. Neo banks are very much different from nowadays commerical banks in each scenario and their business model is not an exception. A business model on which a neo bank works is altogether different from a traditional bank model.
Basically,Neo banks refers to a bank without any branches. A bank that is entirely online rather than being physical. Neo banking provides complete digital banking experience through mobile applications or web Applications.
With the main goal of providing seamless customer experience, neo banks provide solutions in ways traditional banks still not able to provide. Neo banks are quite cheaper, very much faster and they can integrate the entire financial portfolio in one single handy platform.
How does it work?
A research from Zion Marketing team is, the neo bank model is predicted to raise $394 billion by the year 2026. In India, the neo banks segment is continuously going up as they raised $90 million last year. Currently, there are 10 neo banks in India and some still looking for funcding in valley (just kidding)yes but some are expected to start their operations soon. But, as per BoFA securities, neo banks would take some more years to disrupt the market.
Neo banks are considered completely digital. They operate entirely online with no physical branches. Neo banks provide multiple money services from cash transfers to checking account balances. These banks partner with the standard banks and facilitate them to acquire the customers seamlessly.
Neo-banks set themselves apart in the way they approach marketing vis-a-vis traditional banks. What neo-banks may lack in inherent customer trust and legacy (as many of them are essentially startups), they more than make up for with a wide range of honest customer engagement activities. It is very common for neo-banks to move with a campaigns through digital and social media, and focus on building communities, influencer marketing, publishing encouraging testimonials and the positive word-of-mouth from customers. Customer referral is also a huge asset for any neo-bank, and it is often modelled on the likes of successful platform economy giants such as Uber and Netflix.
How it changing the tradition of banking?
The first big difference between neo and challenger banks is their physical presence. Neobanks are entirely digital, cloud-based concerns that reach out to their customers from web platforms and mobile applications. First launched in 2010, the idea is that neobanks offer a simplified solution for SMEs and startup companies.
Neobanks provide a platform that not only has a current account, but also provide offers different features such as payroll, expense management and automated accounting services. However, neobanks do not hold a banking license. Instead, in order to operate, they rely on a partner bank.
The greatest asset that neobanks offer SME’s and startups, is flexibility and access to a wide range of services. Neobanks provide a platform that not only has a current account, but also offers additional features such as payroll, expense management and automated accounting services.
Neobanks also provide a range of add-ons that offer solutions to the corporate financial challenges SMEs commonly struggle with. Along with this, they allow APIs to help integrate business workflows with banking requirements.
However, neobanks do not hold a banking license. Instead, in order to operate, they rely on a partner bank. This means they cannot offer more traditional banking services.
Is our future secure with Neo Banks?
Now, the final question rises. In the world of data, where all our privacy, personal life is being monitored and controlled by digitalization. So, our money or debt will also be controlled by this digitalization. Neo banking no doubt gives many benefits which we already looked above, but did we remember that the current technologies which we are using comes with basic benefit and now they are controlling our lives.
With competition mounting among traditional banks, new-age fintechs, technology companies and non-banking entrants have started growing sustainably. However, in terms of rules, regulations, and compliance, neo banks handle essential impediments. The essential elements of their success are awareness, cyber security, API integration and advanced products and services.
Other point come is that these digital are less regulated and are not even considered fully functional banks in India. This also means they are allowed to offer fewer services. This further reduces a potential customer’s trust in them.