Neobanks: Everything You Need to Know
Updated: Jun 17
Neobanks are what Slack is for physical offices.
Keeping the idea of digitization and financial inclusiveness at the core, traditional banks have moved from brick-and-mortar to adapting the digital versions of their services. Neobanks take it a step further with a digital-only approach.
Neobanks are fully functional digital-only banks with advanced features.
1. Minimum overheads attract more users.
The most significant expense of traditional banks is their physical branches and ATM installations across the geography. Along with the ownership cost, there comes the maintenance cost of the physical real estate. However, with neo banking, the mobile application or the desktop interface is the only real estate to be maintained.
As a result, Neobanks can deliver the same services at a much lower cost, attracting more people.
2. Technology Driven
Internet banking has been here for a while, but traditional banks are lacking in digital interfaces. They are struggling to embrace technological advancement. Whereas the new age FinTech startups have been acing the implementation of technology into their business models.
It would take 60% of companies more than a year to launch a new idea, while a fintech startup could launch a product within just two months
Neobanks offer services above and beyond what traditional banks have been offering, like budget trackers, card management systems, smart UI/UX, etc.
3. Faster Turnaround
The implication of technology in the banking processes has further led to a faster turnaround time for neo-banks. Their customer service chatbots are equipped with AI capabilities to effectively solve customer concerns.
They are also quick in their services, with most banking issues like password retrieval, and card application being resolved in real-time.
4. Caters to the drivers of the economy
Neobanks might have a lesser market share than traditional banks now, but they are growing at a much higher pace.
The global neo-bank market was worth USD 18.6 billion in 2018 and is expected to grow at a CAGR of around 46.5% between 2019 and 2026, generating around USD 394.6 billion by 2026.
The stats spell that neo-banking is banking the previously underbanked population, which broadly includes Gen Z & Y and the financially exclusive population of the society, having a broader scope of financial development.
Neobanking in MENA
52% of men and only 35% of women have a bank account
Among the unbanked, 86% of men and 75% of women have mobile phones.
Up to 20 Million unbanked adults in the region send or receive domestic remittances using cash or an over-the-counter service, including 7 million in the Arab Republic of Egypt.
Though the landscape has progressed a fair bit since then, there remain enough opportunities for upcoming neo-banks to capitalize on. Neobanks can help with this banking void in the region.
The regulators in the Middle East and North Africa region have been prioritizing financial inclusiveness through a digital transformation through initiatives like Emirates Digital Wallet and via upholding FinTech startups.
The Neo Banking Landscape
Neobanks can be of either of the two types; Full Stack Neobanks and Front End Focused Neobanks.
A full-stack neo bank is a standalone bank in itself with appropriate banking licenses to offer its services. Here the neo bank is in charge of all front-end and back-end operations. Some examples of such a neo-banking model are N26, Monzo, Atom Bank, etc.
Whereas a front-end-focused neo-bank is dependent on a legacy bank to funnel its services to the customers. They do not have a banking license and only have control over the customer interface. An example of such a model includes Revolut.
In either of the neo-banking models, the banks might want to connect with external service providers to extend their line of services; PayNet’s omnichannel hub has built-in connectors and a sandbox for quick integration of third-party developers into your existing system.
The omnichannel hub can also help existing banking giants. Often, it happens that these giants fully digitize their banking services just like a neo bank to collaborate with a tech giant. It enables them to deliver their services to a new customer segment.
For example, Instamojo has collaborated with YesBank that in reality, is a traditional bank but has entirely digitized its services for Instamojo. It enables anybody who is signing up for Instamojo to open an account with YesBank online. But in this case, YesBank can not be called a neo-bank because it has offline branches, too; neo-banks don’t have an offline presence.
The banking sector’s digital transformation is faring well with financial inclusion and internet penetration coming in the spotlight. It is an excellent time for FinTech/ Neobanking startup to seize the opportunities and contribute to the movement.
Ankur Mishra is the COO of PayNet Systems, one of the leading digital banking and payments solutions. He is a visionary leader whose flamboyant management style has given profitable results for the company. He believes in the mantra of giving 100% to his work.