Neo-Banks, the Next Evolution of Banking
Neo-banks are online-only financial technology (fintech) companies that operate solely digitally or through mobile apps.
The banks, with the help of their branches spread all over the world, have met the requirements of most of their customers. However, start-ups and fintech companies have now come up with a new convenient and hassle-free banking experience by launching 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 business, neo-banks make almost everything easier.
The use of robotics, machine learning, and artificial intelligence has helped fintech companies offer a wide range of solutions to problems faced by customers of traditional banks.
Neo-Banks products are designed with customer convenience as the top priority, where we have Fintechs like Uni-Pay, Slice providing credit cards and line of credit, where customers can split their credit card bills unpaid credit in 3 easy EMIs and pay, without any additional or hidden costs. Likewise, we have RazorPayX, a customized product for SMEs and businesses offering current accounts and the ability to receive instant payments, corporate cards and loans.
Neo-Banks vs. Digital Bank:
Often, neo-banks and digital banks are used interchangeably. However, it is important to note that while both types of banks offer digital-only services, the digital bank is usually an online-only partner or subsidiary of a traditional bank. On the other hand, Neo-Bank is an independent financial technology company or a Fintech company carrying on its business without a physical branch in partnership with one or more traditional banks to offer different products and services ranging from card issuance to the creation of ‘an account.
The numbers don’t lie: expectations and growth figures
According to a report by KBV Research, the size of the global neo-banking market is expected to reach $333.4 billion by 2026, growing at a compound annual growth rate (CAGR) of 47.1%. Although neo-banks are a relatively new concept in India, the concept has been gaining traction over the past few years. There are about ten neo-banks in India including Razorpay X, EpiFi, Open, NiYo, Jupiter, Slice among others. In recent times, some of these companies have raised money from well-known global investors, who are betting on the potential of India’s hugely underbanked market.
The Driving Force: Mobile & Millennials!!!
The market potential of neo-banks is driven by the growing penetration of the Internet and smartphones across the world. Also, it’s a generation of millennials, and today’s millennials are very impatient, and they need things to be done very quickly and very efficiently. Traditional banks, due to their existing operational burdens and other factors, are unable to meet the demands of this customer segment, and so to meet these demands, FinTechs are offering experience-based products very intelligent and intuitive users who are a real eye-catcher for millennials.
Opening doors with open APIs:
The new age neo-banking revolution is happening as traditional banks started to slowly open up and the pandemic gave them the digital acceleration they were looking to develop. Bank systems are now more open and ready to partner with the outside world to expand their services. To facilitate this, APIs have been a very powerful driving force on the road to digital expansion and acceleration. Traditional banks have taken advantage of the open APIs provided by their solution providers to extend their services and solutions to fintech companies, extend their reach and achieve their goal of expanding the customer base and offering more products and services.
My big brother: traditional banks
Can traditional banks disappear? Although neo-banks don’t have the funds or the customer base to overthrow traditional banks, they do have something special in their arsenal: innovation. They can launch features and develop partnerships to serve their customers much faster than traditional banks.
With the projection of having 1 billion smartphone users by 2026 and 96% by 2040 in India, neo-banks have the potential to grow.
Having said that, the traditional banks will not disappear, because these neo-banks, although having a very sharp product in technology and capable of attracting more and more customers, the banking brain or the banking backbone is provided by traditional brick-and-mortar banks. .
Also, traditional banks can leverage the customer base and class of customers they have from fintech, and this was hotly contested territory for traditional banks to sell and sell their other traditional products.
So, the future is in the collaboration of traditional banks and Fintech players, the two hand in hand can create a very strong and advanced banking presence that will help to develop banks as well as FinTechs on the way to offer an excellent customer experience.