In the fintech community, Neobanks are also referred to as ‘challenger banks’ and they have been dominating the industry while working towards simplifying financial services. Lots of Indian consumers have been transacting digitally and are becoming much more comfortable with rising fintech by every passing day.
Let’s take a closer look and dive into understanding the meaning of this term.
What is a Neobank?
A digital bank without any branches is known as a neobank and it works completely online.
These fintechs normally specialize in specific financial products, which include checking and savings accounts. Digital financial services related to money transfers, lending and payments are offered.
Neobanks do not have their own bank licenses but there are bank partners that are available to offer licensed services.
Satisfaction of customers has become a vital part of the financial world and neobanks have helped in providing the experience that is needed and in meeting the expectations set by them when traditional banks are unable to.
A research study was conducted and it was found that there were 256 Neobanks around the world.
How does a Neobank work?
The business model that Neobanks use is quite different from the traditional system of banking. Similar to traditional banks, money is marginally made by neobanks with inflow of money and lending that is done.
As a physical location is not used by a Neobank, the fees that users or consumers pay is much lesser in comparison.
Personalized services are available for customers by using the technology in place as the data is modernized. This helps with the analysis of data, allowing them to understand the behaviour of their customers in the ecosystem that is present. Large bases of customers are ultimately acquired and managed on the basis of these observations.
What are the Pros of Neobanks?
- Creating an account is quick and simple as there’s no elaborate process involved. With just a couple of steps, you can create your account from anywhere.
- A great customer experience is provided as it has a smooth, user friendly interface. The needs of customers can easily be fulfilled with neobanking apps.
- The transactions are immediate and all the information is provided on the app along with an overview on the expenses, savings and payments which have been made.
- Transactions or payments can be made internationally with ease by using the current exchange rates.
- There are lower operating costs which allows users to gain benefits in the form of higher interest rates and lower prices.
What are the Cons of Neobanks?
- As Neobanks are completely digital, there is no branch network and this doesn’t allow you to have direct contact with an individual on neobanking issues.
- Most old customers don’t put their trust in newer forms of technology as they are accustomed to old fashioned styles of operating and this can be a barrier when it comes to investing their time in upcoming alternatives or types of technology.
- There are always going to be security issues that impact the image of Neobanks and this could allow customers to feel as though traditional banks are safer due to stricter regulations which are in place.
How can you select the right Neobank?
Research appropriately.
Making sure the right Neobank is chosen is a very important financial decision. Online research is a crucial factor and by reading through reviews and going through expert advice, you can choose the most suitable banks according to your preferences. Reward programs, interest rates and the various experiences that customers have had will be covered in these reviews.
Make sure that the values are considered.
Ensure that the money you are investing is in alignment with the goals and values you have in place. Your money is deposited and reinvested elsewhere by banks to pay interest to customers and retain an amount for themselves. If a bank is investing your money somewhere that does not go according to your beliefs, you should look for a bank that invests your money in a way that aligns with your goals and values.
Develop an understanding of the costs involved.
The expenses clearly go down with neobanks as there are no physical branches and lower transaction costs that are involved when it comes to opening an account. The withdrawal and transaction fees are low and there are customer friendly tools that help with budgeting in order to track the expenses and save a higher amount.
Learn about the interest rates
Most banks provide interest rates that are above average, especially for saving accounts. Researching and going through the interest rates that different neobanks give out is an important aspect. There is lesser overhead and better incremental interest is offered. It is an incentive for customers to allow them to retain a higher amount of capital.
Search for the trade-offs
There is a sense of security that arises with experience and knowledge, so when something is tested beforehand, a degree of trust is obviously established. This is why, before selecting a Neobank, going through the innovations that are in place and making sure that they are quick in response and ready to work seamlessly is majorly crucial.
A commerce graduate who is on a mission to educate people about investment and personal finance.