Neobanks are online banks that do business without having physical locations for their branches. Due to the absence of banking licenses in the past, these banks used to conduct their business in conjunction with more conventional banks. However, at this point in time, the relevant regulatory bodies are the ones that grant licenses for their banking activities. Therefore, licensed banks, which are also known as Challenger banks, are fundamentally genuine banks that conduct their business using a model that operates online. These banks are able to offer cutting-edge services at prices that are more reasonable due to the fact that they do their business solely online, which keeps their operational expenses to a minimum.
With the enhanced tools offered by Neo banks, consumers are able to prudently manage their finances with only their mobile devices. In addition, in comparison to conventional financial institutions, neo banks provide banking services that are both more affordable and more expedient. These services include mobile-first financial solutions, money transfers, loans, and many more.
How does a neobank work?
What you must know about neobanks
Neobanks, on the other hand, operate based on an entirely unique business model, in contrast to the conventional banking system. However, much like regular banks, neobanks do generate some money through a combination of interest on loans and deposits.
The decision-making process at a neobank is driven by decisions that are based on data. Because their systems are also quite updated, it is much simpler for them to acquire and analyze data, which makes it much simpler for them to understand how their clients act within the ecosystem of neobanking. They establish cohorts of consumers depending on the actions they take based on such observations instead of simply relying on one or two data points alone to make decisions.
What kinds of services do they provide?
Opening a new account
Neobanks make it possible to create an account in a more streamlined and straightforward manner. Within a matter of minutes, customers have the ability to establish accounts on the site. It simply takes five minutes to go through the KYC verification process, then activates the account, and complete the onboarding. It is very easy to open accounts with neobanks as everything is digital, so you just need to visit their website.
The majority of neobanks provide minimal or no credit as a risk mitigation strategy, which enables them to maintain low operating expenses. On the other hand, several neobanks make loans available to customers, both people, and companies, by partnering with traditional financial institutions such as banks & credit unions. Others were lending businesses before they started providing neobank services, and as a result, they are able to provide both loans as well as deposit accounts to their customers.
Offers of Competitive Prices
There are no real estate costs associated with operating a neobank. As a result, the company’s overall operating costs are consistently low. Because of this, they are allowed to provide rates that are more competitive than those offered by traditional banks. Neobanks in India is able to offer identical services to customers with no additional cost, in contrast to conventional financial institutions, which may require customers to pay a fee only to keep their money. Whether it is a loan or insurance you will get the best price compared to traditional banks.
Services with an additional value
The vast majority of neobanks in India operate via virtual platforms, which enable them to serve customers with an expanded range of services and functions. Cash management, tax filing, automatic accounting, budgeting, eCommerce, additional plugins, and other services that are comparable to these are included in the extra services that are offered to improve the user experience. As a result, it contributes to the convergence of banking and financial activities that do not involve banks.
Insurance
The majority of neobanks are not startups; nonetheless, a small subset of neobanks are initiatives that have successfully navigated the hard process of becoming licensed banks. It is a substantial endeavor to get to be a chartered bank; thus many neobanks make partnerships with existing banks. This allows the non-banks to offer FDIC protection on the funds you hold with the service, which is beneficial to customers.
Conclusion
The concept of neobanks is always developing, and as technology advances, current neobanks will expand their offerings into new product categories, increase the degree to which they are automated, and seek to become licensed financial institutions. Whether or not you feel ready to make the switch, it appears that the world of money is moving in the direction of Neobanking due to its user-friendliness, global nature, and low cost for either you or your bank. Whether or not you feel willing to make the transition, it appears that this is where the globe of cash is supposed to head.
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