Neobanks are new-age digital banking platforms that operate entirely online and do not have any physical branches. They specialize in providing digital, mobile-centric financial services such as payments, money transfers, lending and other financial solutions, offering customers a convenient and efficient banking experience and eliminate the need for in-person visits to a bank. With the rapid growth of smartphone usage and internet access in India, neobanks are leveraging this trend to provide technology-driven services and are particularly well-suited for individuals who are comfortable with conducting their financial transactions online, including payments, savings and investments. They are especially appealing to tech-savvy individuals who prefer to conduct their banking activities in a cashless, digital environment.
However, in India, the Reserve Bank of India (RBI) currently does not recognize neobanks as traditional banks i.e., it does not yet permit fully-digital banking establishments to function independently. Therefore, neobanks collaborate with recognized banks to offer customers seamless banking services through their digital platforms.
Why are neobanks becoming so popular?
Neobanks are fintech companies that offer banking services entirely online, without any physical branches. They provide a range of customizable and secure financial services through their apps, using fintech and artificial intelligence (AI) to enhance convenience and reduce costs. Neobanks have disrupted traditional banking practices, such as in-person transactions, lengthy documentation and reliance on bank officials. Although neobanks in India are not directly regulated by the RBI, they partner with RBI-registered banks like ICICI Bank, HDFC Bank, etc. Their primary objective is to bridge the gap left by traditional banks and offer cutting-edge financial services and facilities.
With round-the-clock availability and faster, lower-cost financial services, neobanks provide a convenient and hands-on experience for most users. The appeal of neobanks lies in their ability to offer essential financial services at the touch of a button, making it highly convenient for people who lead a fast-paced digital lifestyle. As India continues to embrace a digital lifestyle, neobanks are fitting right in by allowing people to bank from the comfort of their homes or offices and are showing great promise and potential.
Leading players in the neobanks space:
Due to their ability to cater to the ever-changing needs of customers, neobanks are gaining popularity as the preferred choice among many. The increasing popularity of neobanks has led to the emergence of numerous new-age banks in recent times. Some of the most notable names in this space include, Fi Money, Jupiter, Freo, InstantPay, FamPay, Niyo and RazorpayX.
How neobanks work?
To open an account with neobanks and use their services, customers can easily do so through their user-friendly mobile apps. After opening an account with a neobank in India, customers can access a wide range of services through the bank's mobile application, including bill payments, online purchases, money transfers and savings management. Neo banks rely heavily on technology, particularly Artificial Intelligence (AI) technology, to power their operations. As they do not have any physical branches, neobanks focus on using technology to deliver high-quality, customized banking services to their customers. Innovation is a key driving force behind the functioning of neobanks. They continuously strive to improve their technology and provide a superior banking experience to their customers.
Features of Neobanks:
The following are some of the features that set neobanks apart from traditional banks.
Digital-only platform: Neobanks operate entirely online, with no physical branches or offices. They offer their services through a mobile app or a website.
User-friendly interface: Neobanks use intuitive and easy-to-use interfaces that are designed to provide a seamless customer experience. They often have features such as financial goal-setting, spending analysis and budgeting tools.
Customizable services: Neobanks use technology to provide personalized services and tailored solutions for their customers, based on their individual financial needs and behaviour. Neobanks are tapping into this trend by leveraging technology to create user-friendly features that help individuals track their spending habits and financial activities, while also recommending appropriate financial products. Neobanks are especially attractive to those seeking low-interest loans, high-interest savings accounts and affordable, hassle-free services.
Low fees: Neobanks generally have lower overhead costs than traditional banks, which enables them to offer competitive fees and interest rates to their customers. By not needing to maintain physical branches, neobanks can avoid overhead expenses, which allows them to offer no or low fees for different services and transactions, as well as provide favourable interest rates to customers.
Integration with third-party apps: Many neobanks offer integrations with other financial apps and services, making it easy for customers to manage their finances from a single platform.
Fast and efficient service: Neobanks can typically process transactions and requests quickly, often in real-time, without the need for lengthy paperwork or in-person visits to a bank branch. Neobanks allow customers to easily open savings accounts and even receive physical debit cards. They operate around the clock, allowing customers to perform everyday tasks such as making payments at any time and from anywhere. They provide personalized customer service and with the help of AI, they can quickly resolve any customer issues in real-time as opposed to traditional brick-and-mortar banks.
Innovative products and services: Neobanks are often at the forefront of technological innovation in the financial services industry and may offer unique products and services such as cryptocurrency support or cashback rewards.
Credit card facility and offers: Neobanks promise great offers on credit cards. With traditional banks being wary of offering financial services to certain industries and sectors (like startups), neobanks are fast becoming a more viable option. Some neobanks even provide high-limit, unsecured credit cards based on business performance.
Personal and business loans: Neobanks provide a range of services such as personal and business loans and have a focus on serving underbanked communities. By offering these services, neobanks work to bridge the gap between conventional banks, individuals and expanding enterprises throughout the nation.
High security: Neobanks prioritize privacy, security and safety on their platforms by avoiding the use of outdated legacy technology. This enables them to implement strict measures to ensure the complete protection of customer data.
Limitations of Neo Banks:
While neobanks have many advantages, they also have some disadvantages, including:
Limited services: Compared to traditional banks, neobanks may have a limited range of financial services available and they may not be able to provide face-to-face assistance for complex financial transactions. The limited range of their services compared to traditional banks, may cause discomfort to certain segments of the population, such as senior citizens and non-tech-savvy customers who wish to use neobanks for certain transactions.
Cash transactions: Neobanks do not have physical branches, which makes it difficult for customers to make cash transactions or access physical banking services.
Lack of history and trust: Neobanks are relatively new and do not have a long history of financial stability and customer service, making it difficult to assess their long-term viability and reputation. Neobanking, despite being a modern alternative to traditional banking, lacks the operational experience of established banks. To gain familiarity and confidence with neobanking services, customers may require a period of time to experience these services, possibly on a free basis, before deciding to sign up for premium services.
Should you make the switch?
The fintech industry in India has made significant progress in recent years, with the government focusing on developing digital banks and products to bridge gaps in the market. One sector that has gained traction is neobanks, which offers services under the supervision of the RBI, Securities Exchange Board of India (SEBI) and the Insurance and Regulatory Development Authority of India (IRDAI). NITI Aayog has recommended that neobanks be allowed to become fully licensed digital banks, but the RBI has been hesitant due to perceived risks and uncertainty. The biggest challenge for neobanks lies in gaining the trust of potential customers. Given that customers are accustomed to traditional banking institutions with established brand equity and long-standing customer trust, it may be difficult for them to place their trust in a relatively new and unknown entity.
However, leading neobanks in India have the advantage of time and technology, along with low-cost and customer-centric business models, which can help them gradually build their customer base. Nevertheless, competing against established banking institutions with decades of brand recognition and customer loyalty is a challenging task that will require sustained commitment to quality service delivery over time.
If you're tech-savvy and open to experimenting with new financial services, neobanking might be worth considering. This emerging industry is poised to revolutionize traditional banking and neobanks are leading the charge. However, it's not just neobanks driving this change - there has been a significant shift towards digital payments in India, with even roadside vendors adopting QR codes for transactions. Research has revealed that online payment transactions in India have seen a significant surge compared to the previous years, especially in the post-pandemic era. This suggests that neobanks have tremendous potential in India. As the government continues to encourage the adoption of technology and promotes the Unified Payments Interface (UPI) infrastructure, neobanks are well-positioned to become more mainstream in the future.
Conclusion
Although still in their early stages, neo banks in India represent a significant step towards the future of financial services, with a growing emphasis on the advantages of digitalization. By providing customers with fast, cost-effective and highly accessible banking services, neo banks are at the forefront of the drive to modernize the banking industry. As a result, they are rapidly gaining popularity and are poised to become a key player in the financial services sector.
Comments