What is a Neo bank?
Neo Banks are virtual entities offering various banking services, using the latest technology, entirely online. Neo banks are launched by Fintech companies that build, adapt and implement technology in order to improve and automate the delivery of financial services. These Banks offer a unique banking experience to customers and with the advances in IT like Blockchain concepts, virtual currency etc, these are expected to gain traction in the Banking industry against the traditional brick and mortar banks. Monzo Bank and Atom Bank (both based in the UK) are some of the first Neo banks were launched in 2015.
Need for a Neo bank?
Neo Banking is fully technologically oriented and is focused on offering services that meet the customer expectations such as speed, convenience, time-saving experience etc. Since the entire relationship is on a virtual platform, the banking will be seamless for the tech-savvy users.
Services offered by Neo Banks
Neo banks intend to offer regular banking services to corporate customers and retail customers-
1. Remittance services (IMPS, NEFT, RTGS and foreign remittances)
2. Retail customers are offered lifetime zero balance account, personalized ATM cum debit card, platform to invest in Mutual funds, buy insurance (life and general) etc.
3. Corporate customers are offered business loans (short term loans based on transactions), cards, competitive exchange rates for forex transactions, and a plethora of value-added services like financial analytics, book keeping, payroll solutions, receivables services, expenses management, customer relationship management etc.
Neobanks in India
The Reserve Bank of India, which regulates banking services in India, has not issued any Neo Banking licences in India till now. Therefore, Neo Banks in India presently tie-up with traditional banks and offer their banking services under the traditional bank's network. RazorpayX and Niyo are the major Neo Banks operating in India.
RazorpayX is a business banking platform and offers automated payments services, compliance payments (tax payment) services, instant business loans based on transaction history, inward remittance at a competitive cost etc.
Niyo Bank offers banking services to both corporate customers and retail customers. The bank has tie-up with Yes Bank, IDFC First Bank and DCB. The Bank offers savings account interest rates up to 6% through its tie-up with IDFC First Bank.
What makes it favourable for Neo banks?
1. Expenditure for setting up and operating branches provides a great advantage as the funds thus saved will be deployed to improvise, innovate and adapt state of the art technologies, ultimately resulting in improved customer service.
2. Offers more than just regular banking services to corporate users by providing them data on analytics, automated payments system, payroll maintenance etc. Corporates may find it convenient to raise short term funds within a quick time on the basis of transactions.
3. Entirely online and savings from fixed expenditure will bring down the cost of capital and therefore, customers may gain by way of better interest rates, concession in charges (For example, Niyo bank offers Niyo Global card that has zero charges /markup for forex usage anywhere around the world), competitive forex quotes etc..
4. With the Government's increased focus on financial inclusion and availability of inexpensive mobile data, Neo banks may easily bring a large section of the mobile tech-savvy people into the organized banking system.
What challenges does Neo Banks face in India?
1. Not licenced by RBI and thus are unregulated. Relief for losses regulated entities hough transacting with these entities which may cause issues at the time of raising disputes;
2. Banking in India is synonymous with Branch banking - be it cash deposits/withdrawal, cheque deposits, account opening and even passbook printing. Banking in India will take a few years before getting transformed from branch banking to banking entirely online.
3. Competition from Big private banks like HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Public sector banks like SBI that have invested heavily in digital banking services through various channels like NetBanking, UPI, mobile apps etc.
Conclusion
A PWC study states that the Neo bank market was worth USD 18.6 Billion in 2018 and is set to grow at a CAGR of 46.5% between 2019 and 2026, to reach USD 394.6 billion in 2026. Estimated growth as above will not be possible unless India, as the hot seat of Fintech innovation, plays an active part. Thus it is expected that RBI may come out with its policy and regulations on virtual banks and recognize them by issuing banking licences in the country.
With developments in fintech, the banking sector is expected to undergo a big revolution for good and the customer stands to gain, gain a lot!
The author is a Banker and can be reached at arthaconsultingservices@gmail.com
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