Neo-Banks, the next Evolution of Banking

Neo-Banks:

Neo-banks are online-only financial technology (fintech) companies that operate solely digitally or via mobile apps.

Banks, with the help of their branches spread across the world, have catered to the requirements of most of its customers. However, fintech start-ups and companies have now come up with a convenient, hassle-free new age banking experience by launching the neo-banks.

Typically, Neo-Banks offer a wide range of services like traditional banks. From opening accounts to assessing the creditworthiness of an individual or an enterprise, neo-banks facilitate almost everything.

The usage of robotics, machine learning, and artificial intelligence has helped the fintech companies to offer a wide range of solutions to the problems faced by the customers of traditional banks.

The Neo-Banks products are crafted giving customer convenience as an utmost priority, where we have Fintechs like Uni-Pay, Slice providing credit cards and credit line, where customers can break their outstanding credit card bills into easy 3 EMI’s and pay, without any extra or hidden charges. Similarly, we have RazorPayX, a customized product for SME’s and corporates providing current accounts and ability to receive instant payments, corporate cards and Loans.

Neo-Banks v/s Digital Bank:

Many times, Neo-Banks and digital banks are used interchangeably. However, it is important to note that even though both the type of banks offer digital services only, the digital bank is generally an online-only partner or a subsidiary of a traditional bank. On the other hand, Neo-Bank is an independent financial technology company or a Fintech company carrying out its business without any physical branch in partnership with single or multiple traditional banks to offer different products and services ranging from issuing card to creating an account.

Numbers don’t Lie: Expectations and growth numbers

According to a report by KBV Research, the global neo-banking market size is expected to reach $333.4 billion by 2026, rising at a compounded annual growth rate (CAGR) of 47.1 per cent. Although neo-banks are relatively new concept in India, the concept has been gaining traction over the last few years. There are around a dozen neo-banks in India including Razorpay X, EpiFi, Open, NiYo, Jupiter, Slice among others. In recent times, some of these firms raised funding from marquee global investors, who are betting on India’s hugely underbanked market potential.

The Driving Force: Mobile & Millennials!!!

The market potential for Neo-Banks is driven by the rising penetration of the internet and smartphones across the globe. Also, this is a generation of millennials, and the millennials today are very impatient, and they need things to be done very quickly, and in a very efficient manner. Traditional banks, due to their existing operational loads and other factors, are unable to keep up with the demands of this customer segment, and hence to cater to these demands, the FinTechs come in with a very smart and intuitive User Experience based products which is a real eye catchy product for the millennials.

Opening Doors with Open API’s:

The new age Neo-Banking revolution is happening due to a fact that the traditional banks have started to open slowly, and the pandemic have given them the digital acceleration which they were seeking to grow. The Banks systems are now more open and ready to partner with outside world to extend their services. To facilitate this, API’s have been a very strong driving force on the way to expansion and digital acceleration. Traditional banks have leveraged the Open API’s provided by their solution providers to extend their services and solutions to the Fintech’s companies and expand their reach and fulfill their goal of expanded customer base and more products and service offerings.

My Big Brother: Traditional Banks  

Can the traditional banks vanish? While Neo-banks don’t have the funds or customer base to overthrow traditional banks, they have something special in their arsenal -- innovation. They can launch features and develop partnerships to serve their customers much more quickly than traditional banks.

With the Projection of having 1 billion smartphone users by 2026, and 96% by 2040 in India, the Neo-Banks have the potential to grow.

Having said that, the traditional banks will not vanish, as these neo-banks, though have a very tech savvy product and ability to lure in more and more customers, the Banking brain or the Banking backbone is provided by the traditional brick and mortar banks.

Also, Traditional banks can leverage on the customer base and the customer category which they have from fintech, and was a hard-fought territory for traditional banks, to upsell and cross sell their other traditional products.

So, the future is, of collaboration of the traditional banks and the Fintech players, both hand in hand can create a very strong and advanced banking presence which will help grow the banks as well as the FinTechs on the way to providing an excellent customer experience.