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The changing preferences of consumers who rely heavily on digital platforms have transformed the banking industry over the past 4 to 5 years. Traditional banks are starting to face close competition with new and emerging neo-banks that offer fast, convenient, cross-border financial services on a mobile phone through an app.
Neo-banks are digital banks that do not have physical branches and provide all financial services to their consumers through apps accessible via a smartphone. They require minimal paperwork, are affordable, charge zero minimum transaction fees, and are borderless unlike traditional banks. They are also called challenger banks because they have turned the whole traditional banking model upside down with a technology-driven alternative banking mode.
Among the growing clientele of neo-banks are people who travel the world frequently, college students, tech-savvy millennials, and even financial illiterates who can now easily access their bank accounts while on the go on their cellphones.
Features and functionality
The neo-banks have brought about a paradigm shift in the way Indians manage their money and their banking needs today. These digital financial institutions are deploying the latest technology stack to enable safe and secure banking transactions for their consumers while managing their finances and investments through personalized engagement and care, all through your mobile phone. They give you the ability to travel anywhere in the world without having to carry money with you. They are paperless and have removed the fees charged for cash withdrawals abroad or on any purchase made with an international debit card. You can open an account at a neo-bank in just 10 minutes with minimal paperwork, and you receive a virtual debit card to use immediately. Additionally, access to global investment opportunities, easy international banking services for students, and low cost global spending are some other key features of a neo-bank.
Value proposition
One might ask why someone who has traditionally banked for generations switched to a neo-bank? Their USP lies in their unmatched value propositions, with speed and convenience at the top of the list.
Convenience: Each of us would have had at least one traumatic experience in a physical bank with financial transactions – long queues, endless paperwork, multiple signatures, holidays, slow and inefficient bank officials, etc.
Neo-banks make life easier by giving consumers a hassle-free banking experience at their fingertips with a mobile app that does their work quickly and efficiently for them, no matter where they are in the world. Accounts are opened within 10 minutes of providing primary documents and a quick KYC form has been completed.
Cost: Since their inception, neo-banks have been known for their profitability compared to traditional banks. Since these banks do not have physical branches, the operating and labor costs are almost zero. Customers do not have to pay any fees for opening an account with us – no account opening fees, monthly fees, transfer fees or minimum balance requirements are mandatory.
Financial direction: Neo banks leverage technology that combines deposits, loans, debits and credits in one place with one-click access to everything on the mobile screen. Transparency is the key to their success as they keep consumers informed of their account status in real time, even offering personalized advice on the best investment options.
Customization: Neo-banks are leveraging technology and artificial intelligence to provide consumers with a personalized service experience while minimizing operating costs.
Multi-product seamless: Offering a multi-faceted set of services, a digital neo-bank is a one-stop shop for efficient, borderless banking facilities. The seamless service suite includes secure, easy and compliant borderless banking, hassle-free transition to the functional corridor for work, access to global investment opportunities, easy international banking for students, global spending low cost, etc.
Reach and growth in India
In 2020, India’s smartphone penetration rate reached 54% and is expected to reach 96% by 2040, more than double compared to fiscal 2016, when only 22% of mobile subscribers used a smartphone. In 2020, the volume of smartphone shipments across India was around 149.7 million. *
With smartphone penetration in India expected to increase in the coming years, there is a huge scope for growth for Neo banks in India. Neo-banks target three main categories of customers:
– High-end consumers are always looking for a better seamless experience that aligns with all of their digital touchpoints, be it Apple, Amazon or Facebook.
– Underbanked customers who do not have access to a quality bank and have unstable and irregular incomes can nevertheless benefit from a digital financial platform.
– Customers with special needs, such as independent contractors, freelancers, Uber drivers, etc., may need very short term loans to smooth their cash flow.
In India, MSMEs make up around 95% of the country’s industrial units but have not been covered by conventional banks. Neo-banks give these MSMEs access to financial services through a formal banking and credit system.
The main factor driving the growth of neo-banks in India is that traditional banks are still unable to deliver the range of services they offer securely and efficiently on a digital platform. In the future, neo-banks will only get bigger and better with technological improvements. Neo-banks already have real-time data and lego blocks as an architecture, which makes it easier to deploy new features and products.
What’s interesting is that it’s customers who are driving this wave of change in the banking industry as they become more and more demanding about the experience and value they expect from. their banking experience.
As the neo-banking sector is still in its infancy, it is facing start-up and growth difficulties due to operational constraints and regulatory barriers. Some of them include:
Lack of regulatory clarity: Neo-banks lack regulatory acceptance. The RBI does not fully recognize neobanks. To be accepted by the RBI, an institution must have extensive retail outlets. To expand on the key challenge here, a fully digital bank is not getting permission to open a store independently. They need to partner with a traditional bank.
Quality of management: Data confidentiality is an important concern for any institution with technology at its head. Since neo-banks rely heavily on customer data with the potential for cross-sell products to stay afloat, defaults and frauds are a cause for concern. Chances are it will be affected by the passage of the Personal Data Protection Bill, the Indian equivalent of GDPR.
The author, Venkat Gopalakrishnan, is COO at Aeldra. Opinions expressed are personal
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