Introduction

Neo banking has become a buzzword in the fintech community. We see a new player on the market every day whose primary intention is to simplify financial services to a great extent through a neobank. But do we know what it is all about?

What are neobanks?

Neobanks are digital-only banks that operate exclusively online without a physical branch network. There are two types of neobanks, one who partner with traditional banks and operate as a separate identity on their license. And second, are those who obtain full banking license of their own.

How are neobanks different from of traditional banks’ digital spin-offs?

• Neobanks and digital banks are not the same, even though their emphasis on digital operating models. Digital banks are platforms of an established and regulated bank. Whereas a neobank exists digitally only without any physical branch network or in partnership with traditional banks.
• Neobanks is based on a customer-centric, personalized principle but traditional banks cover the entire gamut of banking operation with a product-based approach.
• Neo banking players target the current pain points plaguing customers with traditional banking in India, which include a lack of proactive customer service, unnecessary bank fees, lengthy resolution times, reliance on legacy systems, and no real-time support

How do neobanks support customer experience (CX) in banking?

Customers have begun to value a hassle-free experience and are willing to actively seek better options or solutions. From the bank’s perspective, it is imperative to build a relationship with the customers that raise trust in the banking system. The neo banking sphere has the potential of offering a banking customer experience that could be a notch higher than the current conventional banking proposition.

For the customer, a smooth experience means having faith in the banking system. A customer is likely to use more financial services from the bank if there exists mutual trust, forming the cornerstone of a lasting relationship

We are not an e-commerce company where once we deliver the product to your doorstep our journey finished. NO, our journey starts when the customer opens an account. – Suman Gandham

Key challenges for neobanks

• Generating trust will take a lot of time and ‘patient capital (investment without expecting returns in the near term) especially in India with a high trust deficit to keep/ store money in digital form. The problem will be magnified considering the target segments neobanks will cater to in India. The fear of losing money in online transactions is higher for the unbanked segments
• The biggest problem, however, is that new customers are giving neobanks a try, but not using them as their main account, meaning they are a financial burden instead of an asset due to the cost of customer acquisition involved

The future roadmap for neobanks

• Attributes such as accessibility, cost-effective multiple banking and financial functionalities under one umbrella, and personalisation are some of the driving factors for neobanks.
• Although digital and neobanks are gathering momentum, most are yet to show sustained profitability. They have great potential to be disruptors in the banking and financial services industry.
• The key to becoming profitable entities would be to convince traditional banks to invest in new-age technology and restructure processes to provide seamless and swift customer experiences.

How neobanks manage vital impediments in terms of regulation and compliance, data and cybersecurity, seamless API integration and expansion of products and services will be the fundamental determinants of their success. – Suman Gandham

Authors

Twimbit and Finin collaborate for this webinar where, Suman Gandham, founder and CEO Finin and Varnika Goel, Senior analyst Twimbit discuss neo banking and its growth opportunity in the Indian context. We thank Suman and Finin’s team for orchestrating the webinar.