Various innovations are being introduced and new technologies are being brought about with the increased usage of mobiles. And with that, there is also a boost in the financial industry with fintech products and digitization. The various digital methods took the place of digital cash and as people started getting used to it, new and advanced technology entered. One such innovation is the Neobank.
Technology and banking together have changed the way how banking and transacting could be done, and that is what Neobank has been doing. Integration, chatbots, artificial intelligence, data management, and analytics, etc have helped with customer analysis and pattern study to provide them with the best financial services.
This blog further explains what is Neobank, how it works, and its advantages as well as drawbacks.
What is Neobank?
The Neobank meaning can be explained with the description of its functioning and services.
Neobank offers personalized banking services with a customer-centric approach which is opposite to the traditional way of banking.
Neobank renders the banking and financial services through the online modes with no physical operation. They provide services related to payments, transfers, lending, loans, etc. In India, the neobanks work with various restrictions and operate with licensed banking partners.
It is a mobile banking application that enables better fluidity, money management, and better decision-making related to the same. They are completely digital and technology-based however would require the traditional banks by their side for licensed services. But, there is no human involvement required which reduces the possibility of transaction mistakes and errors.
As mentioned earlier the increase in penetration of the smartphones, internet, and innovations in technology has given an immense boost in the market growth for the neobanks. The valuation of the market size of the global neobanking in 2020 was USD 34.77 billion. It is anticipated that there would be an expansion of 47.7% compound annual growth rate (CAGR) from 2021 to 2028 and it would be valued at 722.60 billion in 2028.
Neobank VS Traditional Banks
The above Neobank meaning gives a clear idea of what is a neobank and how the business models of the neo banks and the traditional banks differ a lot.
In the traditional banking system, the primary rendering of customer services happens physically at the bank branch where the customers can visit and carry out the required transactions. Whereas Neobanking happens through online modes only, primarily through a mobile application with no physical locations. Also, they can be contacted through emails, chats, and calls.
As the customer services are personal in the traditional banks, it tends to make them slower. Whereas, the neobanks are faster due to automatic and data-driven decisions.
The types of services that the neobanks could provide depend on their licenses and approvals. The traditional banks have a complete banking license.
Neobanks are transparent in processing and also have lower fees as well as operational costs due to the online-only operations. This is opposite in the traditional banking, due to the physical presence its costs and expenses are higher and it charges various types of fees to the customers based on the account and transaction types.
Neobanks provide speedy services, better interest rates, affordable banking services, etc. Due to the low-cost business model, its fees for various customer services such as deposits, withdrawals, minimum balance, etc are also low.
Advantages of Neobanks
Neobanking is a beneficial business model and consists of the below advantages:
- The lower operational cost and the resultant low fees
Neobank has a completely digital operation and so its operational cost is reduced to a great extent. Customers can avail various types of banking services through their smartphones with neobanks.
There are no extra charges and the basic banking services are free of cost. Where the traditional banks have the charges such as for the account statements, ATM transactions, other transactions, etc, the neobank provide them for free.
The neobanking is completely secure for your digital transactions with its advanced security compliances such as encryption standards, authentications, and control systems.
- Digital presence and excellent UI
The core point in the explanation of the neobank meaning was that it is mobile application-based banking with various services and features in it. These applications are designed after proper research and have an excellent user interface to meet the customer’s expectations and provide them with extreme ease.
- Easy and fast service
Due to the digital platform, the neobank facilitates seamless account creation. The customers need not visit anywhere and can create the account from the comfort of their places in no time.
Also, other services are fast and in real-time due to a smart dashboard available through apps and other digital means. This dashboard also enables statistics, insights, and analytics. The management of the expenses, savings, and finances become easy due to the complete display of statistics before you.
- Power of fintech
Being a part of the innovation of the fintech-enabled products, neobanks removes the barriers of the locations. The customers can transact internationally as well as in domestic areas within the country easily.
Neobank uses modern tech such as artificial intelligence and with that advises the customers about the various other financial products with a complete picture.
Disadvantages of Neobanks
Neobanking is an innovative yet new concept, thus it requires gaining the trust of the various customer bases. There are customers who require to meet and talk to the bank representatives which is not available to most of the neobanks. There are other drawbacks too such as competition and the profitability sources.
Neobanks are the future of the banking industry. Its advantages can give a clear idea about how much it has achieved and soon it will make it possible that its drawbacks are removed. Slowly they are overlapping traditional banking.
Businesses involve online payments and transacting, these become easy with the neobanking solution due to the digital outreach, insights & analytics, and various banking operations.
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