It is no secret that technology has permeated every aspect of our lives and created a disruption across industries. This is true for the banking sector as well. Once considered a heavily traditional ecosystem rooted in paper systems and physical presence, banking has transformed significantly in the past few decades. The sector has now moved past the basics such as digitisation and gone on to welcoming new entrants such as neobanks that are entirely online and have no physical branches—something that was unthinkable just a couple decades ago! Spurred by technological advances, and changes in customer preferences and expectations, neobanks are now being touted as the future of banking.
NEOBANKS VS TRADITIONAL BANKS
Apart from the main distinguisher of neobanks being purely online entities, there are some marked differences between the two. Neobanks aren’t just online versions of our traditional banks. In fact, they are built on the principle of technological prowess, agility and lean business models—all characteristics that are vastly different from traditional banks. Neobanks are financial institutions that leverage technology such as AI and machine learning to offer hyper-personalised services at lower costs than traditional banks. Neobanks work to provide all conventional banking services along with a range of additional services that are customer-centric in nature. For example, in contrast to a regular legacy bank, neobanks are able to help customers with tasks such as computation and paying of taxes. Below are some additional distinct advantages that provide neobanks with an edge.
Higher interest rates and lower fees: One of the greatest advantages of neobanks is their ability to have lower fees. This is made possible by their low overhead costs as they do not have to worry about investing in brick-and-mortar stores or other physical infrastructure. As a result, they can operate at significantly lower costs than traditional banks and offer their customers higher rates of interest.
Automated services: In addition to providing basic digital banking services, neobanks go one step further to provide customers with real-time services. Whether it is maintaining balance sheets, P&L statements, bookkeeping or taxation and GST compliance work, neo banks can help customers with all this and much more via their mobile apps at budgeted costs. This is especially helpful for SME businesses that require such services but aren’t always in a position to hire expensive resources for each service.
Intuitive banking: The overarching goal of tech-forward services in any sector is to gather and accumulate information and eventually, draw meaningful insights from that data. The same principle applies in banking. Neobanks use technology to provide their customers with intuitively intelligent solutions and deep insights into their financial decisions. Through their tech-enhanced dashboards and easy-to-use interfaces, neobanks are able to help individual customers and businesses to make smarter decisions. For example, in addition to providing a simple reminder for a credit card payment, a neobank interface might be able to alert customers as to the exact amount/percentage of a late penalty. And for a business, neobanks can offer astute insights into bank statements and spending patterns that could help boost fiscal responsibility and trim unnecessary expenditures.
Better customer service: Neobanks, by virtue of being online, are able to offer 24×7 customer support and are not bound by geography and time zones. Their mobile-first approach allows them to target the growing cohort of Gen Z audiences who are not particular about an in-person approach and appreciate digital round-the-clock services that are available to them at the time they want. AI, automation and blockchain technology makes this possible for neobanks to do, thereby elevating the customer experience.
Neobanks are, thus, being deemed as the future of banking because they promise to offer near super-app-like capabilities where customers can get everything they need from one comprehensive digital platform. Whether it is analysing salary spending or offering consumers the best options for insurance, neobanks have the power to be a one-stop solution for all traditional and non-traditional banking and financial needs. And while they may not replace legacy systems completely, in the future, we will see more big banks tying up with neobanks to provide their customers with better services that embody the essence of 21st century tech-enhanced BFSI services.
Milan Ganatra is Founder & CEO, 1Silverbullet, a serial entrepreneur and a fintech veteran.