New words have become a common point of conversation in many industries. The word ‘fintech’ has become a part of regular discussions, debates and seminars. Yet, another term that finance experts have used, in the last two years, is neo-banking. This blog focuses on neo-banks, their meaning, functions and benefits to the finance sector.
New technology innovations can change the very course of an industry. It seldom matters, even if the concerned sector has a rich tradition of a few hundred years. In the banking industry, neo-banks have become the preferred model of digital banking in many countries. This modern banking model has revolutionized the fintech sector by challenging traditional models. The reason, neo banks are also known as “Challenger banks.” The other aliases are fintech banks and digital banks.
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Introduction
There are only 24 hours in a day. People make use of technology to save time. Will we take a quick rewind to the traditional methods of banking? In those days, you would have to wait four hours in a queue for a withdrawal or a deposit. With super-fast internet speeds (5G), the online fund gets transferred within seconds.
The meaning of Neo is new – it is the new form of the Banking process. These banks offer services in the digital format via an app/online platform. These smart banks also give services such as checking accounts and debit cards. Yet, the major point is that these banks will not have a brick-and-mortar location (no physical presence or physical branches).
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Benefits Neobanks Have Brought to the Banking Sector
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1. Less Charges
Compared to brick-and-mortar banks, the fees for various services are low. The reason, these banks do not have physical branches. So, they do not have to pay the charges for rent, electricity and other expenses.
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2. Opening a Bank Account
In some banks, there is one process the customers find very frustrating. Some banks ensure the customer visits at least one of their physical branches. Few banks take the help of third-party agencies to check the authenticity of customers.
In a neobank, the entire process gets completed online via an app (or website platform). Customers can open an account online, from the comfort of their home. It is possible to use the account within 15 minutes.
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3. Benefits
Neo banks (or the new-age banks) offer banking features such as real-time notifications. Customers receive instant updates on transactions, account balances and other important account activities.
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4. New technologies
Neobanks have introduced innovative technologies (blockchain and artificial intelligence) in their operations. This is to improve the level of their services and maximize the automation of all processes.
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5. Eco-friendliness
Some neo-banks use only debit cards made from recycled materials.
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The other Benefits are:
Personalised Banking Experience
These banks give the option to choose their own color/design and favorite photos/images for their debit card. The customers also allow them to set up categories to keep a check on their spending and saving tasks.
These options help the customer bond with the neo-bank. Neo banks employ security measures such as biometric & two-factor authentication (2FA) and encryption to protect user data.
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Neobanks Comparison with Normal Traditional Banking Models
- Simple Account-Opening Procedure: The procedure to open a bank account has not changed when compared to the traditional models. Even today, many banks ask customers to visit the brand when opening an account. Yet, in neo banks, the procedure to open an account is hassle-free. There is no need to visit a brick-and-mortar branch. You can open a neo-bank account in three to four simple steps.
- User-friendly interface – Every neo-bank website has a user-friendly design to give customers the best experience. In normal banks, sometimes, the online banking task gets filled with glitches.
- Student Loans – Some neo-banks have lending services for student’s educational programs. (Example – SoFi)
- Security Features – Though opening an account is easy, neo-banks design the best cybersecurity features for their app or online platforms.
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The old way of opening your online banking account with a password has passed the golden sands of time. Neo-banks use many security protocols such as facial recognition, fingerprint scanning and other authentication procedures.
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Top Popular NeoBanks in the Globe
1. Revolut
2. N26
3. Tinaba
4. Illimity Bank
5. Isybank
6. Upgrade
7. Atom Bank
8. Starling Bank
9. Varo Bank
10. Monzo
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Conclusion
There is one reason, financial experts opine, that has led to the massive popularity of neo-banks across the globe. They have designed personalised procedures and have welcomed a large section of the global population (known as the unbanked population, customers with poor credit history and SMEs).
For example, freelance writers, artists and workers comprise a large section of the banking sector. Yet, their needs are not seldom met by traditional banking institutions. This population gets many incomes via various streams, and needs instant approval of fund deposit or transfer.
The next sector consists of the small and medium-scale enterprises that received the least benefits from traditional banks. Neo-banks offer options for easy opening of accounts, international fund transfer and features for financial management. With all these benefits, SMEs consider Neo-banks as the premium partners for their industrial operations.
Millennials and Gen Z, unlike two to three decades ago, are interested in online interactions and transactions. Neobanks have catered to this tech-savvy population by designing user-friendly services and secure digital platforms. By offering them personalized features such as financial tools that control their spending and saving habits, neo-banks have succeeded in establishing customer loyalty and retention. It is no wonder that these banks have revolutionized the banking sector.
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Blog by Sathya Narayana B.
