Multiple Ways Neo banks are Challenging Traditional Banks

Neo-banks can address the gap in the consumer demographics, by offering a comprehensive financial services platform for their personal financial needs.

Imagine if you are traveling abroad and need to visit your branch. A decade ago, the only option would be to postpone the visit to the bank until you got back from your trip. Neo-banks fill that gap through a digital banking platform. Fintech firms are an agile version of banking that is both flexible and convenient for the tech-savvy generation. Neo-banking in India provides primary banking services, such as creating an account and loans to money transfer services.

Neo Banks and Traditional banks

Advantages of Neo-Banks

Financial industry publisher, Jim Marous rightly claims, “Financial institutions must be able to deliver an easy to navigate, a seamless digital platform that goes far beyond a miniaturised online banking offering.”

Did you know that 87% of the population in India and China are fintech consumers, compared to the global average of 64 percent in 2019? 

Neo-banks deliver focussed and secure banking experience through their technology and customised financial services.

Here are some advantages of  Neo-banking solutions:

  1. Lower cost of operating a neo-bank account
  2. Personalised services through digital channels
  3. Upgraded technology stack
  4. Streamlined operations for secure transactions
  5. Higher customer accessibility 

Regulatory Issues

In 2018, the Reserve Bank of India (RBI) banned all forms of cryptocurrency and similar financial systems on the ground of lack of transparency and security. But in August 2019, it permitted the testing of new financial technologies in a controlled environment in which fintech startups were seen as the primary stakeholders. 

While it is a welcome move towards fresh innovations in digital finance and banking, the regulatory concerns of RBI about cryptocurrency and neo banking services cannot be discounted. 

RBI does not permit 100 per cent digital banks in India. Most of the services and firms are linked to traditional banks. But, the collaboration between banking and technology services are providing credibility of brand and customer legacy that is centred around customer experience. Combined with a technology stack that leaves zero margins for errors, India has leapfrogged its way into a secure fintech future

Neo Banks vs Traditional Banks

A World Bank Report stated that more than 190 million Indians were unbanked in 2019. 

Neo-banks are seen as the solution to address this gap in the consumer demographic. They offer a comprehensive financial services platform that manages payments, accounting, expense management, and short-term loans at individual and organisational levels. 

  • Target customers: Neo-banks mainly cater to tech-savvy millennials and the underserved blue-collar workers. Traditional banks are, in general, inaccessible to these categories of people. By digitalisation of banking services, neo-banks promote financial inclusion among them.
  • Loans: Through better algorithms, neo-banks are in a better position to evaluate the credit-worthiness of loan applicants and even offer loans at lower interest rates than traditional banks.
  • Co-branding: Since neo-banks are not licensed to operate independent of a traditional banking network, financial services are provided to both existing and new customers over the digital platform.

Neo-banks or challenger banks are the latest touchstone in the world of fintech. Issues, such as regulatory acceptance, merchant acceptance and onboarding inhibit the rate of progress.

Despite constraints, these platforms, whether as a part of traditional banks or otherwise are challenging the current banking scenario. With the growing importance of digitisation in finance, investment and banking spurring on fintech in India, neo-banking in India is set to scale new heights.

 

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