Neobanks: A new way of banking

Shreya Sinha 

NEOBANKING

The term neobanks first became prominent in the year 2017 to describe Fintech based financial service providers that were challenging the traditional banks. Neobanks, also known as online banks, internet-only banks, virtual banks or digital banks, is a type of direct bank that operates exclusively online without traditional physical branch networks. Neobanks  appeal to tech savvy customers who don’t mind doing most of their money management through a mobile application. By getting rid of physical branches and moving everything online, neobanks often save the cost of the physical branches, allowing them to cut fees and expand their online services.

 

 

HOW DO THEY WORK  

Neobanks work solely online without any physical brick-and- mortar branches, independently or in partnership with traditional banks. They partner up with banks and do sourcing and front-end management while all the transactions are processed by the banks. Imagine them being like the banks’ sales agents of sorts! They attract customers through their user-friendly platforms and diverse services which they offer. And all of the resulting transactions are done on the banks’ back-end. So, to set up a new account, you could just log onto any one of the neobank platforms and initiate the process. The partnered bank will remain the main custodian of all customer information. All transactions will be authenticated by the bank and flow through the bank’s fraud monitoring processes, even though they are getting initiated by the neobanks

SERVICES PROVIDED BY NEOBANKS:-

The neobanks provide number of financial services. Neobanks are providing a fluidity that the traditional banks lack. It is convenient and easy to operate a mobile application that manages their money by helping them with various decisions. Chatbots and AI provide more enhanced customer experience by analysing customer patterns, credit history, and other data to create realistic data models for recommending financial services based on their lifestyle choices.

The main services provided by neobanks are:-

a) Checking and savings accounts.

b) Payment and money transfer services.

c) Loans for individuals and companies.

d) Other services such as budget support among others.

 

NEOBANKS ACCROSS THE WORLD

AMERICA:-

Ø Chime

Ø Aspiration

Ø Varo

Ø Ally

Ø SoFi

CHINA:-

Ø Webank

Ø Neat

Ø Yilian Bank

UNITED KINGDOM:-

Ø Atom bank

Ø Monzo

Ø Revolut

Ø Starling bank

AUSTRALIA:-

Ø Volt Bank

Ø Tyro payments.

NEO BANKS IN INDIA

Ø Razorpay X-  Razorpay is a financial technology headquartered in Bangalore, India. It was founded by Harsil Mathur and Shashank Kumar in 2014 in partnership with RBL. It allows payment solutions that allows businesses to accept, process and disburse payments.

 

Ø Niyo – Partnered with IDFC First, Niyo Solution Inc are headquartered in Bangalore, India. The Company supports human resource managements and banks in the payroll functions.

 

Ø OPEN – Open is a Bangalore based financial technology that started its journey in 2007.  They work in partnership with ICICI, YES bank, SBI, Axis bank, HDFC, Kotak, Indusind, Union,IDFC, PNB and Citibank. They offers small businesses and start-ups an online bank account and a credit card that combines banking, payments and accounting in a single place. As a neobank for businesses, Open solves the pain points business owners go through with the current banking system.

 

Ø InstantPay – They deliver full stack banking services to individuals and businesses of all sizes. InstantPay offers instant activation, money tracking and cash deposit features to its customers.

 

Ø PayZello – PayZello is a Hydrabad-based start-up company founded by a college dropout  Pruthiraj Rath. Combining debit, credit and forex capabilities into one card, Payzello’s app allows users to switch between them- the default being credit.

 

 

 

RISE OF NEOBANKS

Fintech start-ups have seen a massive growth of around $3.7 billion in the year 2019 alone. India has the highest adoption rate of Fintech services in the world. Not only that, India’s annual return on investment on fintech start-ups is also the highest in the world at 29%, compared to the world average of around 20%.Many new ‘neo-banking’ start-ups have come up in the country and have already raised north of $90 million! The global neobank market was worth  USD 18.6 billion in 2018. Not only this, it is expected that the growth rate will be accelerated at a compounded annual growth rate (CAGR) of around 46.5% between 2019 and 2026, generating around USD 394.6 billion by 2026.