Neobanks are financial technology-based banks that operate totally in the digital and mobile space. As of 2020, Neobank is still a relatively newer terminology and less understood by most of the traditional banking customers. Nevertheless, it is slowly but steadily gaining its popularity among teenage banking customers in India and also across the globe.
What are Neobanks in India?
Neobanks are totally digital and mobile without any physical branches. Neobanks are financial products that serve the basic needs of most teenage banking customers. Their services typically include commonly used services like account opening, money transfers, bill payments, money lending purely through mobile and digital channels, etc. Most of the neobanks provide good data and behaviour driven analytics and reports for the customers making it very attractive.
Types of Neobanks:
Broadly there are two types of neobanks:
- Neobanks that hold a banking licence to act as a chartered bank so that they are authorised to manage the customer deposits themselves.
- Neobanks that do not have a banking license of their own, but have a tie-up with authorised banks to manage the customer deposits.
Neobanks in different countries fall under one of the two categories based on the regulations in a particular country. As of 2020, there are about 10 neobanks in India and neobanks are allowed to operate only with a tie-up with traditional banks.
Difference Between Neobanks, Digital Banks, Traditional Banks
Both digital banks and neobanks are concepts evolved from the fintech firms’ ambitions to evolve from traditional banking and leverage the technological advances to the benefit of both the customers as well as the financial institutions.
Traditional banks are typical brick and mortar structures that provide various financial offerings like savings and current account management, capital finance, lending, asset management, SME banking etc.
Digital banks are typically online and mobile service offerings of the established financial institutions and banks. Service offerings of typical digital banks vary in size according to the size of the underlying banks.
Neobanks are toned-down versions of traditional banks and digital banks. Though there are a lot of commonalities between digital banks and neobanks, the latter typically do not provide the same array of service offerings provided by a digital bank of an established bank. Both neobanks and digital banks embrace the technological advances and provide extremely dynamic customer experience through both digital and mobile channels.
The Journey of Neobanks in India
Traditionally customers are used to visiting the banks for account openings, initiating a deposit, cheque book requests, availing loans and other commonly needed services. This allows the customers to directly connect with their bank and develop a relationship, which involves a good amount of time commitment from the customers and the banking staff who serve their customers. To make sure the customers’ needs were properly taken care of, deploying well-trained staff at the branches becomes inevitable.
Before the technology era took over the banking operations, all the banking operations were purely paper-based and demanded maintaining hundreds of physical ledgers. In the last two decades, since the technological advancements started taking effect in the financial sector, efforts were directed towards maintaining a branch. This entails setting aside a dedicated budget by the banks in terms of maintaining the branch facilities, including spending money on technology-related hardware like computers, printing machines, necessary software etc. As a result, it enables the branch staff to be efficient in providing service at all branches.
In the last decade at least, the practice of customers visiting the branches for basic transactional needs has slowly reduced due to the prominence of online banking and mobile banking. Online banking and mobile banking have almost become a norm among the most working class, for all common transactions like fund transfer, opening deposits, closing deposits etc.
But typical online and mobile banking serve only as an extended channel of the banks but cannot thrive on its own independently. On the other hand, neobanks are niche Fintech products that provide a subset of the services provided by traditional banks to a specific segment of the customers in a tech-savvy way. They are purely digital and mobile banks and provide all the commonly needed services at the fingertips directly to the customers.
Why Neobanks appeals more to teenagers? Let’s find out…
1. Tech-Savvy Appeal
Neobanks appeals more to the tech-savvy millennials or teenagers than middle-aged and senior citizen customers because it provides most of the essential banking services at fingertips. In 2020, most of the teenagers are in almost all parts of the world that are technologically connected are tech-savvy. Nevertheless, if the middle-aged and senior citizen banking customers are technically advanced in a particular region, neobank appeals to them as well.
2. Effortless Adoption
Teenagers all over the globe are very much accustomed to using tabs and smartphones for their daily transactional needs. Since these are the primary channels in which neobanks provide their services, it is effortless for the teenagers to adopt to neobanks than traditional banks which still rely on paper-based documentation.
3. E-Commerce Like Experience
Teenagers worldwide are so much used to e-commerce and mobile apps, and banking using technologically advanced banking apps is no way different from doing their online shopping.
4. Enriched Customer Experience
Besides, Neobanks are pioneers in behavioural based analytics and reporting and teenagers who are very much used to smartphones, like to see a prompt or a reminder in their banking apps as an easy way to complete their transaction, be it a payment reminder or a notification on delayed incoming payment, etc.
5. Better Rates
Since Neobanks incurs a less operational cost to the owning institution compared to traditional banks, they offer better rates on some of the deposits, savings and lending products and appeals better to the teenage segment who are not yet into full-fledged earning mode.
6. Ease of Use
Unlike the senior citizens and upper middle-aged customers, who are used to doing financial transactions only through branches, which they believe is the most trustworthy way, the teenagers who have a better understanding of the technology see the advantages of pure digital banks, since it saves them a lot of time.
Moreover, since most teenagers always carry smartphones, for them checking the status of their transactions and initiating new transactions are just a matter of click or swipe.
As of 2020, India has roughly between 30% – 40% of their population less than the age of 20 and the neobanks offerings can be tailored to this tech-savvy populace. With better regulatory support from the central bank and government agencies, it is only expected that the reach and prominence of neobanks will only increase further in India in the years to come.
For digital and physical banks like, the need to process user data is paramount. They will need a dynamic Loan Management System (LMS) and Loan Origination System (LOS) to ace the market competition. This is where Finezza’s industry-leading technology can help your business. To know more, get in touch with us today.