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Fin-Tech
Written by
Sandeep Ozarde
Mayuri Patil
Written by
Sandeep Ozarde
Mayuri Patil
Fin-Tech
NeoBanks are essentially non-banking service providers with technological prowess; and agile and lean business models. The fact that NeoBanks operate exclusively online, without any traditional physical branch network, gives them a major cost advantage; allowing them to offer their products and services at cheaper costs, higher returns, and faster turnarounds.
Their primary focus is on delivering banking services through the internet or other forms of electronic channels. NeoBanks are becoming the top choice for small and medium enterprises (SME) as well as micro-retail markets ie. underbanked and unbanked customers; purely because they make it really convenient to open and operate accounts online, facilitate seamless payments, transfers and remittances; and most importantly, offer alternative methods for assessing creditworthiness. What gives NeoBanks an edge over their traditional counterparts is the fact that they aren’t constrained by lofty regulatory requirements, complex administrative structures, tightly integrated value chains, and legacy systems.
Between, 2017 and 2020, India’s mobile banking users increased by 13% and 92% in value and volume terms, respectively. But as per the Global Findex Database of 2017, 80% of India’s population remains severely underbanked, which reflects the untapped potential in the country for mobile-based NeoBanking services.
There are four main NeoBanks in India, which have received sizeable funding from investors. Recently, one of Singapore’s most prominent banks launched its services in India, including savings accounts, fixed accounts, payments solutions, transfers, and investment management. The services offered by the bank are completely digital, without any presence of physical branches.
Often, we as users get restricted by our own thinking, driven by market demands or trends. It is a known trap for reasons also known to us. Market-driven initiatives are likely to restrict the brands to following an incremental change, and most of the time end up placing the brand in a long queue of market followers.
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While NeoBanks thrive on agility and efficiency, traditional banks have the “Trust” of their customers as a major asset, owning to tough regulations. The higher levels of equity imposed upon them by regulators ensure they are safe and resilient to potential crises. Often, we as users get restricted by our own thinking, driven by market demands or trends. It is a known trap for reasons also known to us. Market-driven initiatives are likely to restrict the brands to following an incremental change, and most of the time end up placing the brand in a long queue of market followers.
Considering that NeoBanks don’t have their own bank licences in India yet, they depend on partners to offer bank-licensed services. Also despite the momentum, most of them are yet to show sustained profitability. Traditional banks can take this as an opportunity to collaborate with NeoBanks in order to harness the new-age technology and reengineer their processes to deliver better customer experience.
NeoBanks currently offer a narrow range of product offerings compared to traditional banks that offer big-ticket car loans, home mortgages, and business services. The latter can take learnings from the NeoBanking service model of swifter and seamless customer service to improve their domain expertise before the former catch up.
Taking inspiration from NeoBanks, traditional banks can invest in building niche solutions on blue-collar workers and the underserved needs of thin-file MSMEs.
Traditional banking needs to adopt an innovative mindset instead of simply keeping pace with the ever-evolving digital world. From training senior executives to recruiting digital-first experts, the industry can immensely grow by prioritizing innovative solutions.
NeoBanks are primarily focused on recognizing and serving consumer pain points, frustrations, unmet needs, and value add that traditional banks had a blindspot for. The latter can gain a great deal by listening and learning, harnessing their invaluable customer data and finance behaviour.
