We live a digital-first lifestyle wherein most of our transactions are online. Whether ordering food, buying groceries, or applying for a job – we do everything online. The same is true for banking. Online financial transactions have made it easier for small businesses to manage their transactions and allocate their time and resources elsewhere.
First, it was net banking services, then digital wallets, and now the revolution is being led by Neobanks. Going by the disruption caused by tech in financial services, insurance, and regulatory compliance – experts opine that Neobanks may be the future of banking services in India.
What is a Neobank?
A Neobank is a banking services provider that operates exclusively online. Neobanks are digitally enabled banking platforms that operate online without a traditional physical branch network. They are also referred to as digital banks or challenger banks. Neo banks aim to improve customer experience, offer easy access, and low-to-no-fee services.
Neo banks reconstruct traditional banks’ practices and operations and make them smarter through innovative technology. Most Neo banks leverage emerging technologies such as artificial intelligence, automation, cloud computing, and machine learning to create exceptional user experiences.
Comparing Neobanks & Traditional Banks
The pandemic pushed the banking and financial services sector to adopt technological solutions for offering their services online. Net banking services became the support system for businesses and individuals needing banking services during the pandemic. Retail banking was still operative even when lockdowns were imposed, but it failed to sustain customer needs as per the demand.
The pandemic circumstances helped convince users of the banking system that it was possible to move their entire financial dealings online. Neo banks draw on this new mindset of the Indian banking customers and run exclusively online banking operations. These financial institutions operate without a network of physical branches and offer highly personalized banking services to their customers.
In India, the Reserve Bank of India has made it mandatory for Neo banks to operate only in partnership with a conventional bank. For now, there are no 100% digital banks in India. Here is a look at the differences between Neobanks vs. Traditional Banks.
|Service Platforms||Web & mobile services||Network of physical branches|
|Fees||Low, transparent||High, complex|
|Customer Support||Phone, online||In-person, phone, online|
|Banking License||None or partial||Entire|
|Confirmation Process||Instant confirmation||Long process|
Benefits of Neobanks
Online banking services with quick turnaround times are essential for small and medium businesses that transact with agility for fast growth. The significance of online banking was also highlighted to Indian customers during the pandemic. But that’s not the only advantage offered by Neo banks. Here’s a look at some of the essential benefits of Neobanks –
- Low Fees & No Minimum Balances – Neobanks operate without physical branches, so their maintenance and operating costs are significantly lower than conventional banks. Therefore, digital banks have lower processing fees for all their services and allow zero balance digital savings accounts.
- Enhanced Customer Experience – Neobanks offer round-the-clock services and work with mobile-first models that allow customers to access banking services on their mobile devices. Using latest technologies such as blockchain, artificial intelligence, and automation Neobanks offer quicker response, high-quality customer service, innovative services and solutions, hassle-free onboarding and interactive user interfaces. These facilities are well-received by millennial and Gen Z customers.
- Saves Time – Neobanks have brought all banking services to their customers’ fingertips. As there are no physical branches, customers can save time and complete their transactions online instead of making time to visit the bank branch. Neobanks offer dynamic customer support, 24×7 online assistance, and cutting-edge technology.
- Advanced Technology & Security – Neobanks operate 100% online; therefore, they prioritize cybersecurity and leverage advanced technologies to secure their customer database. Using artificial intelligence, robotic process automation, and cloud analytics, Neobanks can offer their customers speed and security.
- Multiple Checking Accounts – Customers in Neobanks are free to distribute their money in multiple chequing accounts as needed. They don’t charge any fees for maintaining more than one account. It is a helpful facility for small businesses that wish to organize their finances and track their spending better.
Neobanks have begun a wave of change that is just starting to rise. Neobanks are the epitome of technological innovation in financial services. They leverage the latest technologies to enhance customer experience and streamline complex banking processes. Even though regulatory hurdles limit them, for now, the future of Neobanks in India is full of possibilities. They are bound to gain the credibility and trust of the customers in the next few years. And as the number of Neobanks in the Indian banking sector increases, they will change how our country thinks and uses banking services.
Author Bio: Naina Rajgopalan has a thing for numbers and a deep fascination to learn about all things finance. She’s been money-wise from a young age and has always shared her knowledge and tips with those around her. Being a part of the content team at Freo Save, a neobank that offers a 7% interest rate on savings along with benefits such as insurance on balance, safe & secure banking, and so on,
Naina stays updated with the latest of what happens in the banking and fintech industries. She has taken upon herself to share her knowledge with readers across all walks of life to help them manage their finances and budgets better, so they can make better decisions while spending, borrowing, investing and saving.