What Is A Neo Bank


The world is heading towards the digitization at fast pace. First it was cashless payments, then digital banks, and now the concept of neo-banks is having the attention of fintech investors. While, people have become quite familiar with the two former concepts, not many are aware of the latter’s model.

So, without wasting much of time and energy, let’s get straight to the point to understand what is a neo-bank?

A neo-bank refers to a digital bank having no physical presence, though offers banking services through a network of online banking or telephonic banking. Some banks also have an independent banking agent network, while others may extend their services via ATMs. Neobanking is entirely based on the digital platform, rather than having any branches or in-person interaction with the customers. The bank is an ideal option for today’s tech-savvy customers.

However, in India, the neo banks are still not granted a license and thus, count on licensed bank partners to provide their services. This is because the Reserve Bank of India remains stern in prioritizing the physical presence of banks and financial institutions.

Background of Neo-bank services:

Over the decades, the banking sector is witnessing a rapid change in its mode of services. Initially, the concept of direct banking gained momentum in the early 1990s when online banking technology was taking away the generation with its storm. With this, the sector also observed a change in customer behavior in terms of convenience, transparency, and cost of services. Following the customers’ expectations, banking sector had to modify its business and operational model. Therefore, since mid-2000s, virtual banking has become a stronghold of retail banking.

As of now, the country has over 2000 FinTech players, which promotes digital banking at a large scale. People are in fact switching from traditional banks to Neo-banking services, thanks to the convenience and transparency it comes with.

Digital bank vs. Neo bank:

While both digital bank and neo bank terms are often used interchangeably, but there’s a thin line difference between the two. A digital bank is a part of traditional banking services, while a neo-bank is a complete separate segment, having no links with the traditional banking system.

In simple terms, Neo-bank entirely focuses on delivering its services on digital platform with no physical existence, while digital banks are just a subsidiary of well-established traditional banking entity. However, as neo bank is 100% online banking service, it might raise concern for many in terms of not having personal interaction with the bank’s representative. But, the positive side is that several neobanks have advanced artificial intelligence to ensure customized in-app banking experience delivered to the customers every time.

Features of neo banks:

Although many of the services of neo banks are almost similar to those of a traditional bank, but there are certain features that make a difference.

• Instant account opening – With the advent of digital technology, the days of standing in long queues and waiting for a turn are gone long back. Today, everything is available at a click of a mouse and the banking sector is no different. With Neo Banks, you can open an account within minutes, while getting the account active almost immediately. The process is quite relaxing and transparent that it can be accessed round a clock from anywhere.
• Low costs – Another key feature that makes neo banks an ideal choice is the low cost of operations. As the banks don’t have any physical branches, the overhead cost of expenses is either nil or very low. Therefore, the benefits are extended to the customers in terms of competitive interest rates and low fees and charges.
• Virtual debit card – In order to deliver unmatched banking experience to its customers, neo-banks often issue virtual debit cards that can be easily managed from the mobile app. This digital debit card can be used for making online and offline payments using a PIN or OTP code. In addition, the card can be used for making international purchases as well without paying hefty transactional charges.
• User-friendly interface – As neo banks deliver its services entirely on digital platform, they’re more invested in utilizing their resources to ensure customized and user-friendly interface of mobile apps. Therefore, it’s easy to get instant loan approvals, manage accounts, or make online payments.
• Expense tracking – The best part of neo banking system is that it comes with spend tracker. Accountholders can conveniently track their expenses on daily, weekly, and monthly basis. This will help them avoid unnecessary expenses that are draining their overall financial health. Besides this, expense tracking feature also promotes saving habits to reach a specific goal over a period of time.
• Customer support – As the concept of neo banks entirely relies online, accountholders can get in touch with the customer support representative through direct in-app chat option to get the issue resolved almost immediately.