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Neobanks.docx

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Neobanks.docx

  1. 1. NEOBANKS WHAT IS NEOBANK? Neobank is a virtual-only bank that operates exclusively online instead of any physical infrastructure or branch network. To its users, it provides digital banking wherein they operate their accounts through a mobile application. Neo bank is a virtual bank. A bank without any branches. A bank that is entirely online rather than being physical. Neo banking provides complete digital banking experience through mobile applications. TRADITIONAL BANK VS neobanks Some of the problems with the traditional banks were the approval process being very lengthy, the presence of bureaucracy and red tape. Neobanks add to the customer’s experience and creates value by making this approval process fairly quick, moreover, it’s cheaper for the owners too, since there are no maintenance costs as such, other than that invested in software development which requires constant modifications and updates. But the same can be outsourced too thus decreasing the ultimate cost to the owners. SERVICES OFFERED Since in India, regulations do not permit 100 percent digital banks, neo banks partner with traditional banks to offer licensed services. TO BANKS: They do front-end management and sourcing for the traditional banks since the Reserve Bank of India insists on the physical presence of a bank. TO CUSTOMERS: Because of the lower maintenance costs, no physical branches, and a completely digitalized business model it provides lower cost banking to its customers through checking and savings ac, transfer and payment services, and financial education tools like budgeting and high rates of interest on deposits thus attracting more customers. NEOBANKS AND TELECOM SECTOR Now, since the operations take place through mobile applications, then the growth in the telecom sector, will further promote and encourage consumers to use Neobanks. WORKING MODEL: The mobile applications ask the user for access to privacy settings and then the chatbots and AI analyze the customer’s patterns, credit history, credit scores, and other data to create realistic data models that are then recommended to the users. Since the AI is trying to understand and analyze the lifestyle choices, the service is very personalized and customized and provides maximum customer satisfaction. They also help the customer make their investment decisions. The modernized platform helps in predicting customer behaviour and offer appropriate models or offers. All customer information is ultimately stored with the sponsor Bank, so in a way, Neo-banks and traditional banks have a symbiotic relationship. Neobanks rely on traditional banks for their licensed services and the traditional banks depend on them for digital solutions for targeted segments of tech-savvy customers. Instead of building from scratch and investing in AI technology, traditional banks find it easy to partner with the neobanks. Because it not only provides them with a global base of customers in a matter of minutes but also their information, lifestyle choices, and predictability of customer behaviour. Neobanks operating in India:
  2. 2. As globally, the banks started reducing their branches and started partnering up with Neobanks, because not only is it cost effective but also helpful in customer acquisition and creating or offering a better product offering. Following the footsteps, India has also observed a growth in Neobanks. Our largest private bank, ICICI has already partnered with Open, Instant Pay and Yelo. As of now, about 12-15 neobanks are operating in India, offering different services, and partnering up with private banks. The top 4 beings: InstantPay, Niyo, Open, and RazorpayX. HOW DOES A NEOBANK EARN? Neobanks earn like a traditional bank through interests payment, where we can take the example of ‘Chimes’ the largest consumer neobank in USA which earns through the interchange revenue when a user swipes the debit card issues by them for payment purchases. Main source of income, however, is the interest revenue or the margin left after paying the interest on deposits to the depositors and earned by investing the same in low risk securities. It also earns through cross selling since it is able to predict customer behaviour and needs through the chatbots and AI.

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