Why Neobanks are the future of banking?

In this gilded age of technology, our lives are becoming increasingly digital- the way we order food, apply for a job or do financial transactions. In this accelerated digital-first era, people want to save their time by visiting a bank or waiting in a queue. Technological disruptions have spawned paradigm-shaking solutions like fintech, insurtech and regtech. The latest technological disruption in the banking sector is neobanks. Exclusively digital banks that operate online without any brick-and-mortar branch, neobanks are being heralded as the future of banking. 

According to the stats - the global neobanking’s market size stood at $47.39 billion in 2021 and is forecasted to grow at an astronomical CAGR of 53.4% from 2022 to 2030. The outbreak of the global pandemic has further accelerated the adoption of neobanking. Also called challenger banks, neobanks are challenging the way conventional banks operate and serve their customers. Let us try to demystify the concept of neobanks and understand how they can evolve banking.

Neobanks Vs Traditional Banks

Since digitalization and the pandemic, the traditional retail banking model has failed to retain customers. Evolving customer expectations have given rise to a new breed of banks called neobanks. These financial institutions operate exclusively online without any physical branches and provide all banking services and more digitally. By leveraging technology such as artificial intelligence (AI), automation and cloud computing, neobanks offer highly personalized services at lower costs. However, in India, neobanks have to partner with traditional banks to provide their services as RBI doesn’t permit 100% digital banks as of now. 

Lower Fees and Higher Interest Rates

Perhaps the greatest advantage neobanks have over traditional banks is their exclusive digital presence. Since neobanks do not have to invest in brick-and-mortar branches and infrastructure, they are able to enjoy lower operational costs. As a result, neobanks are able to pass on these benefits to their customers by way of low or no fees and high-interest rates on deposits. Because of an online-only mode of operation, they are able to offer seamless international payments and money transfers at very low rates. 

Elevated Customer Experience

Neobanks are able to leapfrog the gaps in conventional banking by offering round-the-clock digital services. Their mobile-first model enables them to meet the evolving expectations of millennial and Gen Z customers. By leveraging the latest technologies like AI, automation and blockchain, they are able to offer innovative solutions, faster response times, exceptional customer service and quick onboarding. Neobanks are bringing banking services to the customer instead of the other way round. Their interactive UI, 24×7 access and digital operations are elevating the customer experience.

Faster Loan Processing

The traditional banking system has been infamous for its time-consuming and intricate loan disbursal process. However, neobanks are optimizing the loan process by streamlining the rigid structure of traditional banks. With little or no paperwork and online verification, applying and qualifying for a loan is as easy as signing up on a website. With easy access to the amount and interest rates, customers can choose which loan they want and get instant loans as soon as their credit scores are verified. 

Advanced Technology and Security

Since neobanks operate exclusively online, they leverage advanced technologies to build secure and robust banking structures. With cybersecurity at the forefront of their operations, neobanks aim to increase customer safety and satisfaction. By harnessing the powers of Artificial Intelligence (AI), Robotics Process Automation (RPA) and cloud analytics, they build secure systems that are fast and able to mitigate cyberattacks. With security features like biometric verification, 2-factor authorization and encryption, neobanks are safe and convenient to use. Customers can access their bank account and financial information anytime and manage their money more effectively without ever visiting a bank branch.

Final Thoughts

Neobanks have the potential to be more than just the latest buzzword in the fintech community. Anchored by regulatory hurdles, neobanks are yet to unleash their true force. In the years to come, the banking sector can witness an influx of neobanks that will change the face of banking forever. With zero legacy baggage and endless technological possibilities, neobanks can elevate customer experience and streamline complex banking processes. As technological transformations continue to disrupt the world, neobanks too could one day eclipse the traditional banks and become the future of banking.

The article has been written by Asif Bhat, CEO & Co-founder, Getafix Technologies