Neobanking - A fresh way of banking

A new word has been buzzing lately in the Fintech industry. And it is “Neobanking.” This term has gained momentum recently. But actually, what is it?

In simple words, neo banking simply means completely digital. It is a virtual bank without any physical branches, and it runs only online.

What is a Neobank?

Fintech has been escalating at an unprecedented growth and so to beseech today’s tech-savvy customers a lot of fintech firms provide mobile and digital financial solution payments, transactions, money lending and a lot of other services.

These banks have suddenly come up as there is a wide gap that has been created between the traditional bank services and the expectations of the customers. Neobanking is attempting to fill this gap. When it comes to providing assistance to SMEs with financial services and providing payment gateways, multiple cash management systems among other systems. As mobile technology has faced an explosion it makes sense to collaborate with other financial services.

How did Neobanks emerge?

In recent years the need for fintech services challenged traditional banks. The first players that emerged were in Germany as well as the United Kingdom. In India, Niyo Solutions was one of the pioneers to come forward in this sector.

Why are Neobank’s gaining traction successfully?

In recent years we have seen a massive shift of paradigm in the finance industry. Now as a lot of players are emerging in the fintech industry, digital payments are embraced at a very huge scale. Customers have moved towards online banking and digital wallets from physical cash. A large number of people are making online payments through Paytm, Google Pay, Phone pe and many more. Neobanks have a lot of potential in the country as they provide the fluidity that traditional banks do not provide. They are turning out to be profitable and can easily sustain themselves.

How do these banks work?

Neobanks have a completely different business model in comparison to the traditional business model. Yet, they do make money marginally between lending and money inflow. There is no physical location, so there are no maintenance costs, and the customs fees are slashed by a very significant amount. Neobanks are centred on customers and are technologically equipped to provide excellent personalized services to their customers.

These banks are based on data-driven decisions. Since these platforms are modernized it becomes quite easier for them to collect and analyze their customer data and understand their customer behaviour.

For the last decades, traditional banks have divided their businesses with a lot of various systems and processes, but they mostly rely on their physical presence that encompasses a wide network of distribution channels, sales force and branches to operate. Neobanks work on open scalable platforms. They are widely flexible and scalable because they work through API’s integrated with traditional banks.

The table depicts the comparisons given below:

Traditional banks Vs Neobanks

	Traditional banks	Neobanks
Platform	Physical as well as digital presence	Only virtual presence.
Fees	Complex structure and multiple fees charged	Simple and transparent fee structure with minimal charges.
Process of account opening and management	Sometimes tedious, complicated and time consuming.	Very simple, quick and fully digital.
Incentives	Sporadic or very limited.	Innovative value-added services on regular intervals.

 

Features of Neobanks

A lot of people are now aware of neo banking, but still, hesitate to utilize their services. So here are some features that will help you learn more about neo banking.

1.  Modern Scalable Platforms

   The platforms that are available are technically oriented and application-driven and easily provide simple and hassle-free services to the customers. Everything is virtual right from opening an account to managing your finances online. The procedures are quick, efficient and paperless.

2. Value-added banking services

   Modern banking aims to simplify the financial management process by utilizing its existing products. They also form a partnership with traditional banks to sell value-added products, enhancing your overall customer experience.

3. Marketing is customer-focused

   Neobanking is all about customer banking. A lot of fintech service providers drive social and digital media campaigns to build communities. Their marketing strategies utilize influencers and gain information from customer testimonials.

   Along with the features, Neobanking has a lot of advantages, so let us look at some of them-

1. No account creation hassles

   The first and foremost thing with Neobanks is that you don't have to go anywhere to create an account as neobanks do not have any storefront. You can just create an account by sitting in the comfort of your home. The process is simple, quick and convenient.

2. International payments can be done efficiently

   With traditional banks, you do not always get cards that can be used anywhere internationally. You always have to make a request, ask for an upgrade for an international debit card. With Neobanking you can easily use your current card internationally with the prevailing exchange rates.

3. User-friendly interface

   Neobanks are very clean, user friendly and simple. They are designed to be highly responsive and are well designed to the requirements of your customers. So the main benefit is you don't have to work through glitchy banking websites anymore. The unresponsive servers won't bother you anymore.

4. Real-time reporting

   The transactions made in neo banking are immediately reflected in the system. The transaction details are reflected in the system instantly and you have an up to date balance on your account all the time. The application provides you with all the transaction information along with an overview of your expenses along with your financial goals, they can be customized according to your needs. This helps your finance management improve incredibly.

5. Neobanks are great for businesses, too!

   We have talked only about how much customers gain with the help of neobanks. But businesses also gain a lot as they do not have to deal with long and complex procedures of payments and disbursals. A lot of the time that is often spent on manual efforts every month reduces vastly due to flawless efficient systems.

The landscape of neo banking in India and across the globe

The global market for such banks has seen a huge growth in its size and customer base. It is estimated that this sector will continue growing by over 40 % in the next few years.

It is an expectation that neobanks banks will become mainstream players with more customers and small companies will let go of their fear and adapt themselves to the ever-changing environment of the banking industry. By 2026, it is assumed that these new-age banks will have approximately 98 million users with 187 million accounts managing around $63 billion in the world.

Generally, banks cater to all your transactions related to finance like deposits, savings, debit and credit cards, and much more financial services. These services are delivered via a wide range of branches across the country. However now neobanks are offering a more convenient, efficient and simple way to offer the customers a unique and flawless banking experience.

So here was a short glimpse about neo banking, its features and benefits to make you aware of the advantages of digital banking.

Lucent Innovation is a full-service software design and development company and an expert e-commerce solution provider. We create custom applications for our clients leading to an improvement in the efficiency, increased growth and profitability of the business. We also build e-commerce websites that are ready to sell, scale and grow.

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Also, read: Fintech - A revolution in your pocket