The Rise of Neo Banking in India

In India, the neo banks segment is rising as they raised $90 million last year. Currently, there are 10 neo banks in India while some more are expected to start their operations soon

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As technology and digitalization are reaching new heights, customers are slowly switching over to digital banking. Many banks worldwide have begun reducing their physical branches as they are going digital. In India, too, many banks are streamlining their branches and are partnering with the ‘new-gen neo banks’ for a seamless customer experience concerning their products and services.

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According to Zion Market Research, the neo bank model is predicted to raise $394 billion by the year 2026. In India, the neo banks segment is rising as they raised $90 million last year. Currently, there are 10 neo banks in India while some more are expected to start their operations soon. But, as per BoFA securities, neo banks would take some more years to disrupt the market.

Neo banks are considered completely digital. They operate entirely online with no physical branches. Neo banks provide multiple money services from cash transfers to checking account balances. These banks partner with the standard banks and facilitate them to acquire the customers seamlessly.

Segments under neo banking

Neo bank is more flexible than conventional banking. It is advanced, digitally savvy and convenient. As these banks are fully digital, their main focus is based on the key areas of their partnership with the banks.

A neo bank operates in the following five segments.

  1. Neo Banks have targeted customer-segment such as tech-savvy millennials, SMEs, and low salaried class, which aren't the main focus areas of legacy banks.
  2. Lower operational costs and capital investments as there are no physical branches.
  3. Lower fees/charges and easy customer acquisition.
  4. Crafted with cloud technology.
  5. Specialized banking services such as payments, budget, receivables and spend management.

On a global level, neo banks also operate in forex cards, credit cards, income management, expense management, business banking services, and loan products.

Neo banks: need of the hour

A neo bank offers the best of both worlds—conventional bank's trust, protection and security, agility, creativity, and seamless user comfort as that of a fintech.

Neo bank services are similar to that of a conventional bank, but with an improved and personalized customer experience. With a paperless and digital process that takes less than five minutes to complete, a neo banking account can be opened in India. However, offline banking and financial services have various shortcomings. A consumer still has to visit the branch for his savings, asset management, borrowing, and insurance needs.

Therefore, neo banks will develop as a one-stop-shop for all the banking and financial needs—both at the retail and corporate level.

Advantages of neo banks over conventional MSME banks

Customer Experience: The facilities offered by neo banks are similar to those provided by the conventional banks, but with a rich customer experience that is hyper-enhanced and personalized.

Neo banks work on their own leaner business models, advanced technology, ease and efficiency in services compared with traditional banks, such as seamless account growth, support for chat bots, real-time cross-border payments, round-the-clock customer service, and automated accounting, budgeting, and IT-enabled artificial intelligence (AI) and machine learning (ML).

Enhanced automated services: Despite offering primary banking services, neo banks offer automated and real-time accounting and reconciliation services on mobile applications for profit, and loss statements, bookkeeping, balance sheets and tax services such as GST compliant invoicing, record keeping, tax payment and reconciliation.

Security and transparency: Neo banks are open and aim to provide alerts and clarification in real-time of any costs and penalties incurred by the client.

Easy-to-use APIs: Most neo banks can easily introduce and operate APIs to integrate banking into the accounting and payment infrastructure.

Practical insights:  Neo banks are featured with dashboard systems with advanced interfaces, easy to understand, and practical insights for services such as payables and receivables, payments, and bank statements.

For organizations with substantial expenditure and an adequate number of workers, it is desirable to have these observations, minimize expenditure, and improve efficiency and revenue.

Neo banks are known for faster client acquisition and client appeal as compared to the legacy banks. They provide wider product-related services as globally modern banks are allowed to accept deposits and lend on their books. However, agility and competitive gracefulness are the major points that make neo banks stand out on a global level.

The road ahead for neo banking

With competition mounting among traditional banks, new-age fintechs, technology companies and non-banking entrants have started growing sustainably. However, in terms of rules, regulations, and compliance, neo banks handle essential impediments. The essential elements of their success are awareness, cyber security, API integration and advanced products and services.

These banks have widely opened the doors to seamless integrations into APIs by providing a complete solution for all banking needs. Therefore, it’s high time for banks and financial institutions to use technological expansion and transform the old-fashioned operating structure with new-gen neo banks.