Top 5 neo bank trends transforming the Indian banking space

By Edil Corneille

Globally, the neo bank market is expected to accelerate which can be attributed to the COVID-19 pandemic that has acted as a catalyst for the increased acceptance of financial technology (FinTech) by banking consumers.

Neo banks, also called smart banks, virtual banks and challenger banks, are digital-only banks with no physical bank branches. These banks have been presenting an alternative option to other traditional financial institution incumbents. The substantial growth potential for neo banks is driven by their low-cost model for end consumers with no or very low monthly fees on banking services such as minimum balance maintenance, deposits and withdrawals.

Raj N, Founder and Chairman of Zaggle told IBS Intelligence, ” The nationwide lockdown from March 2020 left no option, but to think of alternatives which can ensure continuity of life in general and businesses and livelihoods. Working out of home became the new normal and people have more or less settled down in that mode now. Every single activity was looking for contactless transaction processing. This is particularly true of financial transaction processing. From withdrawing money, to paying hospital bills everything has adopted the digital way. This is where Neo Banks have played and will continue to play a vital role Globally, sign ups with Neo Banks have been 75% more in the year 2020 compared to 2019. India is already getting ready and Singapore has started giving licenses to digital banks too. The scope and opportunity is huge given the undercurrent that the pandemic has set in for the ‘digital only’ phenomenon.”

Adoption by millennials, micro, small and medium enterprises (MSMEs), and those having sporadic incomes and earnings, embracement of innovative technologies and rising consumerism are some of the factors that have played a role in the success of neo banks. The high adoption rates and successful business models of these banks has piqued the interest of investors, venture capitalists and corporates.

Disrupting the Indian banking space where incumbents have taken customers for granted

The rise of digital banking has provided customers with better options and improved convenience. Neo banks have changed the banking landscape of India, and now, FinTech trends are changing the way they do business keeping in mind the loyalty of customers and growth of revenue in the neo banking space.

These virtual banks provide banking services to customers digitally where it can be accessed through smartphones and personal computer channels. The term neo banking became famous in 2017 with FinTech service providers challenging traditional financial institutions. One of the major objectives of neo banks in India is to provide extended banking services to the unbaked at affordable costs.

The world over, these 100 per cent digital banks offer hassle-free banking services in comparison to traditional banking such as accounts, loans, and payments. Here are the top 5 trends in the neo banking space of India.

1. Hassle-free account opening: In the earlier days, opening an account in a traditional bank was a complicated process and highly rigid. However, opening an account now with a neo bank removes the challenges that were associated with traditional banking. Customers can open an account with neo banks without visiting branches, thereby making it more convenient and comfortable especially in light of the COVID-19 pandemic.

2. Creating awareness/ literacy among customers: As awareness of digital services among customers converts to the adoption of such services, there is an exceptional opportunity awaiting for SMEs. The trend of increased digital transactions is expected to continue even post the COVID-19 pandemic as consumers have become familiarised with digital ways of banking.

3. Transparency: Neo banks are very transparent and strive to provide real-time notifications and explanations of any charges and penalties incurred by the customer. They aim to clearly apprise consumers on products and services.

4. Advanced security features: Security is now an essential part of digital transaction processing through banks. Neo banks implement biometric verification, encryption technology and various other security measures to protect customer data. They provide high-security features like locking and freezing any time through the app. The applications are built with a view to ensuring compliance with anti-money laundering laws, safeguarding the privacy of customers and to deter malware attacks.

5. Deep insights: Most of the neo banks provide dashboard solutions to their customers with highly enhanced interfaces and easy to understand and valuable insights for services such as payments, payables and receivables, and bank statements. It is also beneficial for businesses with significant expenditure and an appropriate number of employees, to be provided with such insights, reduce expenditure and boost productivity and revenue.

The ongoing competition among traditional banks, new-age FinTechs, technology firms and non-banking entrants, is yet to display if the market is deep enough for neo banks to grow sustainably and equitably. How neo banks 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.