What is a Neobank? Here’s all you need to know

Neo-banks are completely online-based digital banking platforms. Simply put, they are not present physically. Traditional banking transactions can be time-consuming and labor-intensive for customers. Neo-banks ensure a seamless online experience by incorporating a digital and experiential layer on top of traditional banking. Because they are tech-driven, customers can easily sign up for accounts on their website/App and use their services.

Neo-banks are becoming an increasingly popular option for customers, as they provide a variety of advantages to meet the evolving requirements of modern users. They want to make it easier for people to use banking services and respond quickly to customer needs.

India is currently growing faster than many other nations in terms of internet usage and smartphone penetration. Neo-banks have capitalised on this situation by offering technology-driven services. This has attracted many millennials and technologically savvy populations. Neo-banks fill the void between the services provided by conventional banks and the changing expectations of customers in the digital era. They are transforming the fintech industry and may eventually surpass conventional banks.

Neo-banks and digital banks may be conflated by some. Both offer banking services via smartphones and other mobile devices, making them comparable. The similarities, however, end there. Although the terms are occasionally used interchangeably, digital banks are frequently the online-only divisions of well-known and licenced players in the banking industry. A neo-bank, on the other hand, operates entirely digitally — without any branch locations and either independently or in collaboration with traditional banks. This allows them to navigate the regulatory environment and adhere to its requirements.

How do they work?

Neo-banks have an entirely distinct business model compared to conventional banks. Neo-banks do, however, make a tiny profit between deposits and loans, just like traditional banks.

Additionally, because they are entirely online and have no physical location, the customer fees have been significantly lowered. Neo-banks provide personalised services powered by technology to their customers because they are customer-focused.

A neo-bank makes decisions using data as the primary factor. Due to the advanced nature of their platforms, they are better able to monitor and analyse customer activity in the neo-banking system. Instead of just using one or two data points, they group customers based on how they act.

What are the advantages of neo-banks?

Since neo-banks are entirely digital, they offer customers a vast array of benefits, such as:

User-friendly, hassle-free, and easily accessible: The ease of creating an account is just one of the improvements to the user experience that neo-banks provide as a result of their tech-driven nature. Because neo-banks do not have physical branches in neighbourhoods, customers can open accounts from the comfort of their own homes using their mobile devices. Moreover, due to their technologically-driven KYC procedure, the account can be activated within minutes. The neo-bank app interface is very clear, organized, and user-friendly. They have excellent customer-focused design and are incredibly responsive. The app's popularity among its users stems from its accessibility.

Quick International Payments: With traditional banks, it is not always possible to obtain a debit card that can be used anywhere around the world or carry out the necessary international transactions. To obtain an international debit card, we may need to request an upgrade and submit a request. Forget about all of that hassle when you open an account at a neo-bank. With the current exchange rates, you can make purchases or conduct transactions while travelling abroad using your card.

Personalized experience: Neo-banks facilitate immediate transactions. The details of your transactions are updated instantly, so you always know what your account balance is. You don't need to go anywhere else to find out about your payments or transactions because they are all displayed on your app. The neo-app also gives you an overview of your spending and allows you to set a savings goal that works for you. This enables you to more effectively and intelligently manage your finances.

Last but not least, neo-banks are business-friendly as well. When it comes to payments and disbursements, businesses are frequently faced with lengthy, tedious procedures. However, with neo-banks, you can skip all these and receive insight into payouts to enable you to make effective business decisions.

Why are neo-banks incorporating crypto-friendly solutions?

Over half of the top 10 neo-banks will offer cryptocurrency products to customers in a few years. This is because of two primary factors. First, neo-banks are observing compelling evidence that customers want and will use them. A big reason why neo-banks want to offer cryptocurrency to their customers is that they can see how many people are sending money from their accounts to cryptocurrency exchanges. These are the funds that the neo-banks wish to retain on their platforms. Additionally, offering crypto services is becoming increasingly popular. When neo-banks and challenger banks offer these services, clients jump on board and start buying and selling cryptocurrency right away. 

This is a strong argument for anyone on the fence about incorporating digital assets into their offerings. When neo-banks and challenger banks offer crypto products to their customers, they typically observe three key outcomes: engagement, new revenue streams, and new users. On the engagement front, crypto users log in more frequently and interact with neo-banking platforms twice as often as non-crypto users. Including cryptocurrency in your product opens the door to additional revenue streams from a price premium. Furthermore, as customers interact more with a neo-bank's application, there are additional opportunities to cross-sell them non-cryptocurrency products. The third and most important reason is that offering crypto services makes it possible for new users to join.

Bottom-line

Neo-banking and cryptocurrency banking as a service are concepts that will "stay in the game" over the coming years and become the new norm in the fintech sector. Customers are becoming more aware of and knowledgeable about the huge potential of crypto-friendly bank development. As a result, major market players have already been investing in this evolving space and skillfully meeting the needs of modern customers. As an asset and a currency, cryptocurrencies are likely to have a big impact on wealth management, monetary and fiscal policy, and international trade in the coming years.

Author: Dileep Seinberg, Founder & CEO, MuffinPay, Crypto Neo Bank