Rapid digitalization in banking services is giving rise of neobanks.

A neobank is a type of bank that operates exclusively online. Often considered as digital banks, neobanks are quite distinct from them. While a digital bank is an online-only subsidiary of established and regulated financial service providers, a neobank exists solely online, without any physical branches and independently or in partnership with traditional banks. Neobanks provide the convenience of opening and operating accounts, seamless payments, transfer and remittance solutions, and alternative methods for analyzing creditworthiness.

Neobanks allow customers to perform all financial transactions online – mobile deposits, payment transfers, mobile budgeting tools, and checking of statements, without being any brick-and-mortar space. A number of fintech startups have now started introducing their neobanks to make banking processes simple, convenient and meaningful. These startups are collaborating with traditional financial institutions and offering better solutions by using technology like AI, machine learning, big data and analytics, among others.

Advantages Neobanks Deliver

Neobanks are largely being adopted by millennials as they want more convenience and seamless payment services to make transactions. According to a PwC report, the global neobank market is expected to hit US$394.6 billion by 2026 from US$18.6 billion in 2019, at a growing CAGR of 46.5%. The success behind the growth of these banks includes enhanced adoption by MSMEs, people having sporadic incomes and earnings, usage of innovative technologies and rising consumerism.

Neobansks deliver significant advantages and opportunities for the future banking ecosystem.

Heightened Customer Experience

Services that these banks offer to people are similar to traditional financial services providers. But they provide an enhanced and personalized customer experience. Unlike traditional banks, neobanks deliver significant leaner business models and leverage advanced technologies to provide ease and efficacy in services, such as seamless account creation, 24/7 customer service supported by chatbots, near real-time cross-border payments, and AI and machine learning-powered automated accounting, budgeting and treasury services.

Transparency

Neobanks are more viable in the face of an all-time low transparency effort. As consumers demand more transparency in the banking services, these banks are embracing the opportunity of transparency, providing real-time notifications and explanations of any charges and penalties incurred by the customer. This banking ecosystem is also designed for open banking before the regulation was even on the radar of incumbent banks. 

Improved Services

In today’s augmented customers' expectation business environment, neobanks identify and how crucial it is to create and fine-tune the most elegant account opening or application experience. Many such banks also add fine touches with sharable animations and premium unboxing experiences when they know the customer is through the door. They also deliver near real-time accounting and reconciliation services for bookkeeping, balance sheets, profit and loss statements and taxation services, amongst others.

As per the PwC report, the business sector in 2018 accounted for the majority of the global market revenue of neobanks. This is significantly owing to the growing adoption of digital payments in both multinational companies and early-stage businesses. In India, since the Reserve Bank of India firmly regulates banking licences, neobanks provide services built on the offerings of a traditional bank. However, virtual banking licences are still not granted in the country; foreign national banks offering digital-only products through their Indian subsidiaries.