Agile, flexible & sleek user experiences. What does this mean for the future of banks, and more importantly, for the modern day lender? Here are five quick tid-bits on the rise of neo-banking and the value it could bring:
- Neobanks don’t hold your money, the underlying banks do.
Just because you can’t see your money, doesn’t mean that it’s unsafe. Money that’s deposited in regular banks is as secure as it would be in a neobank account. In fact, customer funds are parked away in an underlying traditional bank account, given that neobanks have back-end tie-ups (that you usually don’t hear of when signing up). For example, Kodo has tied up with State Bank of Mauritius (SBM) for card issuance, and with ICICI and RBL Bank for their banking APIs. Furthermore, full-stack neobanks such as Kodo give full access to withdrawing cash from any ATM, so long as they accept Mastercard.
- Neobanks are chief financial confidants for small, emerging businesses.
Largely pegged on personalising and easing all kinds of money matters for new-age tech entrepreneurs, small or medium business owners, neobanks are set to become the next big thing for the modern day lender. Their intrinsic model is built to embrace and solve needs of its users through increased personalisation, seamless app-based platforms, AI chatbot integration for swift service, fast account creation and budgeting services – all in all performing faster than traditional banking apps and a growing number of new features. Needless to say, they are the contemporary banker’s “spend friend.”
- Digital Banks aren’t the same as Neobanks.
Digital banks serve as online subsidiaries of existing legacy banks. Think ICICI Bank’s long-standing physical presence, which has evolved in time to build its own netbanking portal to incentivise access and customer loyalty. Neobanks on the other hand exist wholly online, with no physical bank branches, offering tailor made finance solutions to its customers through increased personalisation and data informed decision making.
| Neobanks | Traditional Banks | |
| Existence | <5 years | Generations on end |
| Servicing | 100% virtual | Physical presence |
| Licences | None, partial, or full | Full |
| Customer Relationship | Flexible, non-binding | Long-term |
| Fees | Transparent, low maintenance cost, no collaterals | Complex fee structure, intermittent |
| Support | In-app, telephone, online | Telephone, in-person, online |
| Approvals | Quick & automated reconciliation | Manual & prolonged |
- Neobanks make for a great source of sustained credit options for “unbanked” or “underbanked” communities and businesses.
There are still over 190 million unbanked adults in India, many of whom conduct small businesses (kiranas, vendors and suppliers). By way of aiding their financial management comprehensively (and also conveniently), neobanks provide platforms to help in sending and receiving payments, automation and reconciliation of their accounting practices, all while complying with direct and indirect tax laws for invoices. The bottom line is that neobanking works on the periphery to solve immense financial inclusion roadblocks through on-boarding procedures that don’t seem as complex to the average common man.
- Their market positioning determines their target audience.
Consumer preferences today are mighty fragmented. Psychographics are varied, problem statements are diverse and needs are different all across the board. Take Kodo, we solve money-related problems to take away the anxiety that comes with financial management. New business owners often spend too much time trying to figure out their finances, which eats away from a sole purpose a.k.a, their business. Neobanks now have the chance to leverage different segments in the market, by addressing other novel needs based on a consumer’s geography, mindset, media habits and age cohort. India’s dense consumer landscape and ever-growing SME space makes for an opportune market to provide fintech solutions across different strata, and customized personalised banking tools for an aggregated audience.
