What are Neobanks?
 

For the persons who are new to this concept or in a layman language, we can say that neobanks are like any other banks, but the only difference is that their end-to-end services are digital. While some banks have started their own neobanking platforms, several start-ups have collaborated with a banking licencee to launch such digital start-ups.

 

Neobank is a type of direct bank that operates exclusively online without traditional physical branch networks. They work without any offline banking branch. In simpler words, we can call them virtual branchless banks. They are primarily fintech firms providing digital and mobile-first financial solutions services to modern tech-savvy customers. Neobanks are reinventing the practices and processes associated with traditional banking. As the financial landscape is tilting towards enriching the customer experience and improved satisfaction, a gap has been developed between what the traditional banks offer and what the customers expect. Neobanks are making an attempt to fill that gap.

 

They don’t have their own bank licences in India yet. Hence they use partners to offer bank-licenced services. These fintechs are partnering with traditional banks and offering better solutions by using technology such as artificial intelligence (AI) and machine learning (ML).

 
Concept
 

The concept of neobanking first surfaced in the UK after the 2008 financial crisis. This concept is now being adopted across the world. Some of the popular neobanks globally are NuBank, Chime, Revolut, Monzo and N26.

 
According to a recent survey conducted by McKinsey & Company on retail bank customers in France, Spain, Italy, Germany, Portugal and the United Kingdom, online banking activities have registered a stark increase in all of these countries. Moreover, digital engagements spiked 10 to 20 percent in China and Italy.
 
What do they offer?
 
  • Neobanks create a substantial suite of low-cost digital and assisted banking solutions.
  • The services can be easily accessed on mobile , and these can vary from opening and operating accounts, for making deposits or withdrawals such as in a traditional bank to features like mobile deposits, person-to-person payments using phone numbers, emails or even social media identities, mobile budgeting tools and real-time digital receipts.
  • Neobanks show you via emails and text messages exactly how you are spending your money and if your spending patterns are putting you in danger of overspending.
  • They come with an innovative way of assisting small businesses with financial services like providing a payment gateway for seamless and instant payments, invoicing software, multiple views of cash management such as cash flow analysis and projections and many more solutions for expense management, investments, forex needs and so on.
  • Speedy, friendly customer support and relevant services.
  • Features that are attractive to micro and small enterprises and underbanked or unbanked customers
    • Convenience of opening and operating accounts
    • ¬†Seamless payments
    • ¬†Transfer and remittance solutions
    • ¬†Alternative methods for assessing creditworthiness
  • Round the clock customer service supported by chatbots.
  • Real-time payments with ML.
  • AI-enabled automated accounting
  • Budgeting at the back-end
  • Automated service features such as book-keeping, balance-sheet statements, accounting integration, personal finance advisory, GST compliance taxations, insurance, and loans are all just a single click away.
 
Digital vs Neobanking
 

A digital bank and a neobank are not quite the same, even though they appear to be based on the mobile-first approach and emphasise digital operating models. Neobanks are similar to digital banks yet differ a little bit in utility.

 

Digital banking is an additional service of an established and regulated financial entity, while neobanking, on the other hand, is an exclusively online entity working without any physical branches in partnership with the traditional banks.

 
 
 
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