Are you looking for a way, through which you can get more from your bank account? Do you find banking difficult as well as confusing to understand? Then Neobanks are the solution to your problem. Neobanks offer customer convenience, increased transparency, customer service and value for money.
- What are Neobanks?
- What do Neobanks offer?
- How does a Neobank work?
- The Value
- Why choose Neobanks?
- Neobank vs. traditional bank
- Challenges
- Way forward
· What are Neobanks?
Neobanks is the creation of a new-age digital business model that is
inclined to match the needs of end customer as well as get ahead of the
competitors. It is the world of survival of the latest. It operates 100%
digitally. Neobanks are not licensed by the Reserve Bank of India. These banks
rely on their bank partners for offering bank services that require licensing.
Neobanks can be differentiated based on their working as Neobanks like
RazorpayX, Instant Pay work as direct service providers. Whereas SBI YONO and
KOTAK’S 811 are online entities of already established banks.
Neobanks offer minimal features when compared to the traditional form of
banks. The minimalist approach allows customers to do banking in a more
simplistic approach without the excess frills at lesser fees. Neobanks mostly
provide better interest rates when compared to traditional banks because of
their minimalistic approach.
· What do Neobanks offer?
Employing new-age digital technology i.e. Cloud-based storage, open
API’s, Artificial intelligence and Machine Learning. Banks, NBFCs & Fintech
players can offer various facilities:
o Banking as a
Service (BAAS)
o A data-driven
approach for decision making
o Cloud-based storage
o Customised products
o Better customer
experience
o Open APIs
o Easier turnaround
· How does a Neobank
work?
Working of Neobanks are based on the “Banking as a Service” model.
Neobanks are a collaboration of a non-licensed fintech that partners with a
traditional licensed bank. Fintech company uses the branding of fintech while
offering services to partner banks. Various traditional banks have launched
their Neobanks.
While few Neobanks have their license, but most of them do not have the
licence. That is why they rely on a partner bank. The bank provides them with a
platform through which they can perform core banking services. Often, most of
the banks rely on legacy systems and they have outdated digital infrastructure
and services.
· The Value
Traditional banks incur a huge amount of cost due to maintenance of
infrastructure, physical branches, human resources needed to maintain these
branches, etc. These overheads have a significant impact on the cost of
products and services rendered to the end customer. Processing physical
documents of each branch manually, uploading the documents on the server,
managing the intranet connectivity, 24×7 data flow, privacy of customer and
data security of the data collected is a cumbersome task.
· Why choose
Neobanks?
Neobanks have designed their services targeting the newer generation of
tech-savvy consumers. These consumers are comfortable with digital payments.
They also have a busy lifestyle and do not have time to visit the physical
branch to perform routine banking activities. Neobanks allow customers to
manage their money through their smartphone app or the website.
o Convenience: One of the
most important advantages is the ease to use banking services from anywhere,
anytime. These services are easy to use and AI-assisted tools are used for
online verification. Neobanks have simplified the onboarding of customers. They
have easy payment options.
o Quick loan
processing: Neobanks also provide loans with little or no paperwork at all. The
time-consuming procedure for loan sanction that is present in traditional banks
is not there in Neobanks. They verify your credit score from various data
sources and then qualify you for a loan. You can check the amount and the
interest rate charged within minutes.
o Low costs: Banks charge a fee
for debit card, ATM, text message alerts, and more. In Neobanks, products are
inexpensive as their entire system is digital, and often there are no monthly fees
associated with the account.
· Neobank vs. traditional bank
Neobanks differ from traditional banks in various aspects like service
platform, client relation, fee structure, licensing, accessibility, technology,
etc. Traditional banks offer services in physical branches, unlike Neobanks who
offer services 100% digitally. Client relation, as well as communication, is
face to face in traditional baking. Whereas in Neobanks, it is digitally or
virtually. There are various other differences between Neobanks and traditional
banks. Traditional banks should not look at Neo-banks as their new enemy, but
learn from them and also work in collaboration to improve their processes and
services.
Neo-banks are a logical progression to the current pandemic emphasising the
need to go digital.
· Challenges
Neobanks are targeting customer retention as now the traditional banks
are also digitalising. This may possess a threat to the Neobanks as most of the
customers are not using Neobanks as their primary bank. So, these customers may
close their account and move to the Neobanks backed by traditional banks. They
can update their technology and customer acquisition and retention plans from
time to time. Neobanks should also build trust and influence customers to use
their account as the primary account. They should also include more features in
their account. Since Neobanks are 100% digital, those people who are familiar
with the technology can use the service. The concept of Neobanks is also
against the general consumer perception i.e. to go to physical branches.
· Way forward
Neobanks deliver banking services only through online mode. They are
changing the landscape of the banking industry. As they offer low cost and
distinctive services. With an increasing number of mobile as well as internet
users. The audience of Neobanks has also increased significantly. A large
percentage of the population of India is still Unbanked. This provides an
opportunity for Neobanks to expand its customer base. Neobanks are targeting
fast-paced customer acquisition and are devising strategies to reduce cost and
increase profitability.
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