Neobanking Revolution: A Hit or a Miss ?
The stats from a 2018 report was surprising, to say the least.
Neobanking had grown to a whopping $18.6 billion industry. Its projected growth hence comes as no surprise- a CAGR of 46% between 2020 and 2026 as per statistics released by Zion Market Research.
But what is the status right now? Is the projected growth on the path of being realized?
What do you need to know about neo-banking?
In this blog post, we talk about neo-banking, its importance, and what it has to offer for businesses in 2023.
What Is the Meaning of Neobanking?
100% online banking. That’s neo bank for you. It operates entirely online, without any physical branches.
It provides a complete digital banking experience that most traditional banks may not provide.
Neobanks are known to offer financial services like account creation, payment, money transfers, loans, etc
Digital Banks vs Neobanks
If neo-banking is a 100% digital experience then digital banking and neo-banking ought to be the same.
Well, they are not.
Digital banks are essentially the virtual component of regulated banking institutions. For example, net banking or mobile banking services offered for your ICICI or HDFC bank account comes under digital banking.
On the other hand, neo banks operate solely online, devoid of any brick-and-mortar branches. They can either function independently or in conjunction with conventional banks.
Rise of neo banks in India
In recent years, India has witnessed a surge in the popularity of neo-banks.
These banks operate solely through mobile applications without the need for customers to visit a physical branch.
This trend has been further reinforced by nonbanks’ ability to offer faster, more personalized services through technology.
Additionally, neo-banks, offer attractive interest rates and lower fees, which has made them highly popular with customers.
Added credit goes to RBI for de-regulating and supporting the growth of neo-banks.
This has spurred the entry of several new players, like Karbon Card, Razorpay, Kodo, etc.
In the future, the popularity of neo-banks in India is expected to continue to rise, as more customers become comfortable with neo-banking services.
Opportunities In Neobanks For Businesses
Security is a major concern for customers when it comes to digital banking. Fintech applications have implemented multiple redundancies to ensure account security is maintained.
In addition, neo-banks have introduced advanced security measures such as two-factor authentication and access control. This has been mainly done to prevent ransomware attacks.
These measures are designed to provide an extra layer of protection to customers.
Quick and Convenient
Unlike traditional banks, neo-banks allow an account opening process on the go. They don’t require customers to visit a branch multiple times. In terms of the overall time spent at a branch, there is no significant difference between the two.
Research Fact: Study by the Reserve Bank of India, revealed on average customers spend up to 7-7.5 hours for account opening formalities in a bank branch. It includes the time spent on paperwork, documentation, clerical staff reviews, etc.
Seamless Payments Solution
There is a thin line that separates traditional banks and neo-banks concerning national and international payments. The existing debit/credit card needs to be upgraded or you will need to get a brand-new international transaction card. Neo banks do not have that limitation.
Traditional banks typically separate their domestic and international transactions, which necessitates customers updating their debit/credit cards or acquiring new card specifically for international transactions.
Neobanks, on the other hand, have managed to overcome this obstacle by enabling seamless transactions both domestically and internationally.
In comparison to conventional banks that provide significant loans for automobiles, homes, and businesses, neo-banks presently have a narrower selection of products available. However, neobanks’ service model is more rapid and offers streamlined customer service, which improves their specialization in the field.
Neobanks provide value-based services by utilizing artificial intelligence (AI) to analyze account and customer information, trends, and other relevant data to recommend suitable financial services based on individual needs. Neobanks also take advantage of their client’s earnings and recommend demographic-based programs while facilitating clients’ ability to make their own investment decisions.
Disadvantages Of Neobanking For Businesses
Neobanks may not offer mortgage or investment options, unlike traditional banks.
No Physical Locations
The majority of neo-banks function exclusively online and lack brick-and-mortar branches.
This may be inconvenient for customers who prefer face-to-face interactions or need to access cash or other in-person services.
There may be risks of data breaches and cyberattacks. Customers must be careful with their personal and financial information and choose a neo bank with robust security measures.
Reliance on Technology
Neobanks are highly dependent on technology hence technical glitches, system failures, and outages, causing disruptions are a high possibility.
Neobanks, being a comparatively new entrants, might not have to adhere to the same set of regulatory norms as their conventional counterparts.
This lack of oversight can create risks for customers, including the possibility of losing their deposits or experiencing fraud.
Globally factors such as accessibility, and cost-effective financial functioning are highly influential factors for neo-banks.
Additionally, FinTechs are developing specialized solutions catering to MSMEs, indicating the path forward for the industry.
Despite the growing popularity of digital and neo banks, most are yet to demonstrate consistent profitability.
As competition intensifies between traditional banks and FinTechs, it remains to be seen if there is enough market space for neo-banks to achieve equitable growth.
The success of neo-banks will hinge on their ability to navigate crucial obstacles. These may be regulatory compliance, data, cyber security, etc. These factors will be the critical determinants of their long-term success.
Ramitha Ramesh is the editor at Karbon Business, renowned for her expertise in SEO content marketing strategy for a diverse clientele across the US, UK, and India. With a penchant for exploring the fast-paced realm of finance, business, and banking, her blog is a treasure trove of insights that offer unique perspectives on the latest trends and developments in the industry. Finding nirvana in food, fun, and travel, she is on a mission to counter the infodemic of the digital world.