Neobanks is an innovative, hassle-free new-age banking experience that operates without the traditional physical branch network. In India, Neobanks don’t have a banking license; instead, they work with banking partners to offer licensed services. The RBI doesn’t allow banks to be 100% digital yet. Typically, Neobanks operate independently and provide a wide range of services like traditional banks. Tech-savvy people find the concept attractive as it enables them to manage their finances online.
Even though digital banks and neobanks offer similar services, there is a difference in these institutions. Digital banks are online partners or subsidiaries of traditional banks, while Neobanks are financial technology (fintech) companies that carry out their business without physical branches. They use robotics, machine learning, and artificial intelligence to offer innovative financial solutions with better interest rates and lower fees.
How Does a Neobank Work?
A Neobank primarily functions online. They have no physical branches or face-to-face transactions with their customers. Therefore, they save a lot of money on operational and overhead costs. It enables them to offer better terms to their customers for financial solutions. A critical aspect of the functioning of a Neobank is that they leverage the data they collect. And using artificial intelligence and data analytics to drive their decision-making process. Here are some essential elements of the functioning of a Neobank –
1. Neobanks primarily offer tech-led banking services to their customers.
2. In India, the banking partners of Neobanks provide access to funds for lending and take the responsibility of holding customers’ funds.
3. The principal responsibility of the Neobank is operating the app, distributing the product, ensuring customer satisfaction, end-to-end customer acquisition, and client servicing.
4. Neobanks rely on customer data to understand consumer behavior and offer enhanced services based on data insights.
5. They offer no-fee customer accounts that benefit first-time earners and lending services to entrepreneurs and young earners who want to build a good credit score.
What are the Advantages of a Neobank?
Neobanks are changing the game in the financial services industry with their innovative use of technology. They have the potential to offer all banking services at a lower cost to the end customers. Not only that, there are many other benefits of Neobanks –
I. Simple Account Opening Procedure – Even though traditional banks have simplified the process of opening an account – there is a lot of paperwork involved in opening even the best savings account in a conventional bank. On the other hand, in a Neobank, you must open your account on a mobile app.
II. Fewer Costs – Neobanks operate without physical branches, and therefore, they don’t have costs such as maintenance charges, withdrawal fees, or processing fees.
III. Simple & User-Friendly Interface – Neobanks work with the latest cloud-based technology to create high-performance apps and websites. It enables them to give their customers a better experience interacting with their systems.
Neobanks vs. Traditional Banks
Even though Neobanks is a new concept in the financial services industry, it is catching the attention of tech-savvy customers across the country. There are many reasons why new generation customers prefer Neobanks over traditional banks. Here’s a look at them –
1) Service Speed – High-end technology enables Neobanks to offer a smooth-functioning interface for their services. Tasks like money transfers and online payments can be completed in the blink of an eye. Customers enjoy the service experience by navigating their user-friendly app that finishes the job efficiently and quickly.
2) Lower Fees – In the absence of physical branches, minimal regulations, and credit risk - Neobanks function with lower operating costs. In turn, it allows them to transfer this benefit to their customers. Most financial services in Neobanks are available at a significantly lower fee than in traditional banks.
3) Value-Added Services – Most Neobanks build a layer of value-added services and products on top of the core banking services. They also have third-party tie-ups for cross-selling and value-added products. Neobanks focus on the user experience. This feature enhances the customer experience, and lets.
4) Advanced Security Features – As all their operations are online, institutions like Neobanks must use advanced security features to prevent a data breach or a cyber-crime. Neobanks usually have the best-in-class security features to ensure 100% data security and privacy protection.
5) Online Support – The convenience of banking from your home is the most crucial feature of Neobanks that sets them ahead of traditional banks. They offer 100% customer support online and can be trusted to attend to any glitches or issues immediately.
Neobanks are a new-age concept in financial services, and even though it is well-received among banking customers – Neobanks have a long way to go before we can think of replacing traditional banking with online banking. Until the RBI allows them to operate independently with a banking license, Neobanks will continue to give tough competition to traditional banks based on their enhanced user experience and their ability to leverage technology.
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