In the world of fintech, neobanking is one of the biggest buzzwords. The global investment in online banks is expected to hit $30.1 Billion by 2026. (Source: globenewswire.com)
The term has acquired attraction since it’s been in the news and the media. People have started to recognise its features, but we are still to give you a little insight into some of the major key factors associated with neobanking.
Let us together have a closer look at what it signifies.
What is a Neobank?
A Neobank is a digital bank with no physical locations. However, you have to be physically present at a specific location to use Neobanking. Neobanks are fintech companies that offer digital and mobile-first financial services such as payments and money transfers, money loans, and more.
Neobanks do not have their bank licence; thus, they must rely on bank partners to provide bank-licensed services. Due to this, a gap has formed between what traditional banks supply and what clients desire as the financial landscape turns toward client experience and satisfaction. Neobanks are attempting to meet this demand.
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Attraction toward the Neobank
Digital payments are becoming increasingly popular. Customers are abandoning traditional banks and cash in favour of online banking and digital wallets. People are more comfortable than ever before making online payments via UPI ID, QR code, e-wallets, etc.. When we consider these figures, we can understand the potential of Neobanks in the country. Traditional banks lack the flexibility that Neobanks provide. As a result, they’ll be able to easily sustain themselves and turn a profit.
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Neobanks, in contrast to regular banks, operate on a completely different business model. Neobanks, like traditional banks, make money on the margins of money inflow and lending.
Furthermore, because there is no physical facility and everything is done online, the client fees are significantly reduced. Neobanks are customer-centric, meaning they offer individualised services to their consumers powered by technology.
The processing of Neobanking can be categorized into these three major types:
- The first category includes non-licensed FinTech companies that have teamed up with a traditional bank. FinTech, in this case, wraps its partner bank’s numerous services and products in a wrapper.
- The second type occurs when a conventional bank establishes Neobanks as a digital-only venture.
- Neobank, which has digital banking licenses, is the third and final category. This form of Neobank, on the other hand, only exists in nations that allow for stand-alone digital organizations.
Advantages of Neobanking
Because Neobanks are fully digital, they offer their customers a wide range of services. So if you’re thinking about switching to a Neobank, here are some things to think about.
- Effortless account creation
Opening a bank account can be a trying experience. Today that process is not so bad, but it’s still something many of us would prefer to avoid altogether. With Neobank accounts, opening an account is avoided because you can manage your money from your smartphone! This time-consuming step is completely avoided when you open your account with a Neobank. As previously stated, Neobanks do not have a physical location. Due to this, there will be no need for you to visit anywhere in order to open an account. Instead, you can do it from the comfort of your own home or on your phone in just a few simple steps!
You’ll have your account set up in a matter of minutes!
- Track your expenses easily
Transactions with Neobank are instantaneous. As a result, the transaction information is entered rapidly, ensuring that your account always has the most up-to-date balance. In addition, you won’t have to look elsewhere for information about your transactions and payments because your app maintains track of them.
It is a very hectic task to keep track of your expenditure and get the exact expense you have to cut off to fuel your savings. This is when Neobanks come to the rescue by providing a pie chart displaying your expenditure and dividing them into categories to simplify your savings mission.
The neo-app also provides you with an analysis of your expenditure and a savings goal that you can customise to your needs. By giving you more information, you will be able to better manage your finances.
One of the critical advantages of Neobanking is that it is less expensive than traditional banks. Because conventional banks have physical branches, they have to cover operational and labour costs. Neobanks, on the other hand, do not have to cover the costs of operating physical branches. As a result, they can afford to offer little or no fees. Neobanks are also significantly more cost-effective because of the lack of credit concerns and fewer regulations.
Neobanks arose in reaction to the challenges of the previous financial services sector and a new, digital era. Despite certain setbacks, the tendency is unlikely to fade away anytime soon. That’s a positive thing in an industry with long-needed variety and a renewed focus on accessibility.