Will Neo Banks be the future of Banking?

We all can admit that banking can be a headache for anyone who has multiple transactions on a regular basis. If you’re a person who’s fed up with wasting a lot of time with your regular bank, then you can certainly cheer up as Neo Banks are about to change the landscape of how banking is done from now on.

Once upon a time, banking transactions used to take days and you needed to wait for a while to get anything done. You were required to go to the branch physically, fill out forms, wait in line and complete your transaction only when it was your turn. Even now banking is a mess as there is limited space in any physical branch and with the pandemic in place, it’s better to not go there and maintain social distancing.

We all know what happens when banks open after a long public holiday. Too many people with too many transactions but the staff remains the same and so does their working capacity.

But then the internet came and help us in many ways such as:-

• Payment Gateways
• International Payments
• Net/Digital Banking
• Online Transactions

But this is about to get even better as Neo Banks are about to take over and provide you with an even better and seamless experience of banking services. But what exactly is a Neo Bank? It’s an online bank or an internet-only bank that is a type of direct bank that operates exclusively online without any traditional physical branches. These banks are also known as virtual banks or digital banks.

This means that they are no branches whatsoever and your transactions are completely digital. You can’t walk into a physical branch and talk to a human about a banking issue. If you want something, then your only option is to contact their contact their customer care executive.

The term “neobank” first became prominent in 2017 to describe fintech based financial providers that were challenging traditional banks. These banks don’t even have their own banking license.

These banks operate by having tie-ups with various banks and offer services like managing their bank accounts or linking all accounts into one platform for hassle-free seamless experience and time saving. These banks are targeted towards a tech-savvy young audience who wants simpler ways to banking without much trouble.

Now you might be wondering, if they’re going to provide me with banking services, then why the hell should I use their services? That’s a good question as almost every bank today can provide you with 25 different credit cards and loans up to millions of dollars (only if you’re eligible, duh).

But these neobanks do more than just banking. They offer invoicing and accounting services. The major aspect of using their services is that everything is linked together and works on the same interface. How neobanks challenge traditional banks is the way they operate. A traditional bank has huge costs involved as they must pay for salaries, rent, electricity bills and other miscellaneous expenses.

But neobanks save all these upfront costs as they operate completely through the internet and don’t have any physical branches. This helps banks save cost in day to day expenses.

But what functions do they serve? They work B2C as well as B2B. In a B2C case, a customer can receive features such as:-

• Personal Finance
• Mutual Funds
• Link all the bank accounts into 1 Interface

 

In a B2B case, businesses will have the ability to:-

• Link all bank accounts (Just like a normal customer)
• Have billing for all their transactions
• Manage accounting for auditing purpose

 

But what are the advantages of these neo banks? They are as follows:-

• Users can enjoy higher interest rates and fewer fees since these banks don’t have high operational costs.
• These banks also have the facility to ease out transactions as you don’t need to use an external software (tally) to audit your accounts. Everything’s easy and simple to use for someone who isn’t even involve in accounting.
• They also have the facility of a payment gateway. Hence, you don’t need to sign up for a third-party payment gateway.
• For safety and security concerns, they have a 2-factor authentication which enables you to access your bank account even if you have forgotten your log in details. You will receive an OTP on your registered phone number and you’ll be able to log in to your account once again.
• Their user interface is better and more convenient than traditional banks. It’s also more user-friendly.
• They have integrated the use of Artificial Intelligence (AI) and Machine Learning (ML) for tips and suggestions regarding managing expenses and investment. This will help a lot of people who lack financial knowledge.

 

What are the dis-advantages of neo banks? They are as follows:-

• Since there’re no physical branches, there isn’t a person to solve your problems.
• They don’t have ATMs of themselves. But you’ll still get the facility to withdraw and deposit money as they have tie-ups with every major bank.
• They aren’t a bank in legal terms as they don’t have a banking license of their own.

 

The top neo banks in India are as follows:-

• Niyo
• Open
• InstantPay
• RazorpayX

Globally, neo-banks offer 100% digital banking services. According to PwC, the global neo-bank market is expected to grow at a compounded annual growth rate of around 46.5% between 2019 and 2026, generating $394.6 billion by 2026.

With everything that we just discussed, we can say that neo banks might be the future in banking. The concept of neo bank is relatively new, just like bitcoin and blockchain. But I think with time and technology, people will get used to it and adapt to what’s most convenient for them.

Now the big question is that – Whether you will use a Neo Bank for banking or not? Please tell us in the comments. We will be more than happy to read them and reply to them as they’re extremely valuable for us.