In this golden age of technology, our lives are becoming increasingly digital in the way we order food, apply for a job, or conduct financial transactions. In this accelerated digital age, people want to save time by avoiding going to a bank or waiting in line. Technological disruption has spawned paradigm shifting solutions like fintech, insurtech and regtech. The latest technological breakthrough in banking concerns neobanks, digital-only banks that operate online without any physical branches. Neobanks are now heralded as the future of banking.
According to statistics, the global neobank market size stood at $47.39 billion in 2021 and is expected to grow at an astronomical rate (compound annual growth rate) of 53.4% from 2022 to 2030. of the global pandemic has further accelerated the adoption of neobanking. Also called challenger banks, neobanks challenge the way conventional banks operate and serve their customers. Let’s try to demystify the concept of neobanks and understand how they can change banking.
Neobanks vs traditional banks
Since digitalization and the pandemic, the traditional retail banking model has failed to retain customers. Changing customer expectations have given rise to a new generation of banks called neobanks. These financial institutions operate exclusively online, without any physical branches, and provide all banking services, and more, digitally. By leveraging technologies such as artificial intelligence (AI), automation and cloud computing, neobanks offer highly personalized services at lower cost. That said, in India, neo-banks have to partner with traditional banks to provide their services as the Reserve Bank of India (RBI) does not allow 100% digital banks at the moment.
Lower fees, higher interest rates
Perhaps the biggest advantage of neobanks over traditional banks is their exclusive digital presence. Since neobanks do not have to invest in physical branches and infrastructure, they can benefit from reduced operational costs. As a result, neobanks are able to pass these benefits on to their customers through low or no fees and high interest rates on deposits. Through an online-only mode of operation, they are able to offer seamless international payments and money transfers at very low rates.
High customer experience
Neobanks are able to bridge the gaps of conventional banking by offering 24-hour digital services. Their mobile-first model enables them to meet the ever-changing expectations of Millennials and Gen Z customers. By leveraging the latest technologies such as artificial intelligence, automation and blockchain, they are in able to deliver innovative solutions, faster response times, better customer service and rapid onboarding. Their interactive user interface, 247 access and digital operations enhance the customer experience.
Faster loan processing
The traditional banking system is often time consuming and has complex loan disbursement processes. But neobanks are also optimizing their lending processes. With little to no paperwork and online verification, applying for and qualifying for a loan is as easy as signing up on a website. With easy access to amount and interest rates, customers can choose the loan they want and also get instant loans as soon as their credit scores are verified.
Advanced technology and security
As neobanks operate exclusively online, they rely on advanced technologies to build secure and robust banking structures. With cybersecurity at the forefront of their operations, neobanks aim to increase security and customer satisfaction. By harnessing the powers of artificial intelligence (AI), robotic process automation (RPA), and cloud analytics, they create secure systems that are fast and capable of mitigating 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 at any time, and also manage their money more efficiently without ever visiting a bank branch.
Neobanks have the potential to be more than the latest buzzword in the fintech community. Anchored by regulatory hurdles, neobanks have yet to unleash their true strength. In the coming years, the banking industry could see an influx of neobanks that will forever change the face of banking. With zero legacy baggage and endless technological possibilities, neobanks can improve the customer experience and streamline complex banking processes. As technological transformations continue to disrupt the world, neobanks, too, may one day eclipse traditional banks and become the future of banking.
The author is the CEO and co-founder of Getafix Technologies.
(Warning: The opinions expressed are those of the author and Outlook Money does not necessarily subscribe to it. Outlook Money will not be responsible for any damage caused to any person/organization directly or indirectly.)