NeoBank: Banking for the Millennials
In the last post, Payments Bank: Banking Services for Masses, we discussed how Payments banks were conceptualized to connect low income groups, small enterprises and unorganized sector with financial services. With the growing workforce of millennials and young adults along with the rise of FinTech (financial technology) platforms, banking has begun to revolutionize. Thanks to Neobanking, there is a growing interest among younger people to avail banking services without the traditional banking system.
What does a Neobank mean?
A neobank is a type of digital bank that does not have any physical locations. These banks partner with other banks which have physical branches. Neobanks do not have a bank licence of their own but due to their partnership with traditional banks with RBI Banking licence, Neobanks can offer bank licensed services.
Neobanks can be called fintech firms that provide digital and mobile-first financial solutions payments and money transfers, money lending, and more.
With India becoming a hub of rapidly growing FinTech startups along with boosted startup ecosystem, the concept of cashless economy and digital payments solutions has been accepted at a large scale. More number of customers, small business owners and SMEs have started shifting to online payments for their needs. People are becoming more comfortable making online payments using Google Pay, Paytm, PhonePe, and other services than ever before.
As we see the numbers of increase in payment gateways, the banks, with their legacy old infrastructure and traditional systems, cannot match the efficiency thereby resulting in downtime. Neobanks can solve this issue since they are completely online, they can manage to bring rapid changes in their systems and give a good overall experience to its customers.
Working of a Neobank
Since Neobanks are completely online, they have a different business model unlike traditional banks. Unlike Payments Banks, Neobanks can lend money which is where they make money like normal banks. Without having any physical locations, their customer cost and operations cost reduces significantly. With modern technology and data driven ideas, it is easier for neobanks to track customer behaviour and analyse their spending habits. Using this data, they curate offers and financial services to the cohorts of customers.
Why Neobanks are better?
Key advantages of Neobanks are as follows:
- Fully Digital Account Opening and Zero Balance Accounts
Since they do not have physical branches, you can create a new account completely online. KYC and documentation can be done on your smartphone skipping all the hassles involved in offline banking.
- Enhanced Customer Services
Neobanks provide excellent customer services regarding user-friendly app interface and customer support. No buggy netbanking site and glitchy mobile banking app (as seen in traditional banks). Neobanks keep upgrading their platforms to bring deliver the highest quality of user experience.
- Instant Transaction Alerts and Reports
When you make a transaction with a neobank, the transactions are updated in its passbook in real-time with updated balance. All details regarding your past transactions are shown in the history as well. The app also helps you to track your over-expenses and helps you save money by avoiding unnecessary expenditure and making smart deposits (saving goals). This allows you to handle your funds in a far more informed and efficient manner.
- Making International Payments
If you are using a card from a traditional bank, it might happen that to make international payments, you will have to request an upgrade to your existing card. But in case of Neobanks, your cards comes preset of making international payments. You can use your card to make purchases or interact with current currency rates while traveling abroad.
Since neobanks partner with a RBI Licensed bank, the customer’s money is safe and insured up to ₹5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India.
With growing awareness on financial products, more people will prefer Neobanking services due to the quality of ease they offer compared to traditional banks. It’s easy to manage finances and track money and overall, builds the habit of spending money more efficiently.