With the banking industry’s strategy shifting towards delivering a rich customer experience and adopting open-banking, traditional brick-and-mortar brethren are finding ways to get ahead, driving themselves towards extinction. With the wave of digital disruption, services rendered on disruptive technologies are increasingly being placed in the hands of end-customers, and the behaviours of banks are changing in terms of customer convenience, transparency, pricing and customer service. As customers’ behaviours and expectations change, so do the business and operational models. It is not survival of the fittest anymore, but of the latest. Banks, too, have to adapt to these changing technological landscapes and create a new-age digital business model that could serve the end-customer as well as leapfrog them from their competitors. Neo-Banks are a result of one such change.
Traditional banks have a lot of baggage in terms of overheads that they carry – cost of maintaining legacy infrastructure, physical branches with cost of human resources, cost of operation, real estate, etc. These overheads have a domino effect on the cost of products and services rendered to the end-customer. Due to a physical disconnect and geographical challenges of different branches, sharing real-time data of the customer becomes challenging. Processing physical documents manually, uploading them on the server, managing intranet connectivity, 24×7 data flow, and data security just add to the misery.
Neo-banks are banking services that are primarily delivered through the internet or other forms of electronic channels instead of physical branches. They are changing the banking landscape by offering lower-cost models and hyper-distinctive customer-centric service and experiences.
Due to low CAPEX, Neo-banks can grant more benefits to the customer such as favourable rates on saving and fixed deposits, omni-channel customer experience, near real-time services for account management, 24×7 support via chat-bots, free debit/credit cards, etc.
According to Venture Intelligence, Neo-banks in India raised $116m in 2019, a seven-fold jump YoY. This is a clear testament to rising investor appetite. India’s mobile banking users have increased by 13% and 92% in value and volume terms. But as per the Global Findex Database, 80% of India’s population still remains severely underbanked, which reflects the untapped potential in the country for mobile-based neo-banking services. Neo-banks can evolve as a one-stop shop for all of banking and financial needs – both on a retail as well as corporate level.
One of the challenging factors to adopt neo-banking could be acquiring a banking license. Neo-Banks are usually established and operated by non-banking financial institutions or FinTech companies that rely on a banking partner to deliver banking services. External dependency, partnership obligations, and regulatory bottlenecks could heavily affect the adoption of such initiatives.
Traditional banks should not look at Neo-banks as their nemesis, but work in collaboration to improve their own processes and services. Neo-bank can work as an extension to traditional banks by providing digital-only banking solutions, rich omni-channel experience, open-banking, and better value for existing products and services.
Neo-banks are a logical progression to current banking services. And with the pandemic catapulting the need to go digital, a world with “digital-only” banking will soon become a reality.
By Neelesh Kripalani, Senior VP and Head-Center of Excellence, Clover Infotech