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Neobanks: Everything You Need to Know

Updated: 4 days ago

Neobanks are what Slack is for physical offices.

Keeping the idea of digitisation and financial inclusiveness at the core, the 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 a fully functional digital-only bank 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 into the banking processes has further led to a faster turnaround time for neobanks. 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, 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 neobank 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

According to a 2018 report of World Bank, in the MENA region:

  • 52% of men and only 35% of women have a bank account

  • Among the unbanked, 86% of men and 75% of women have a mobile phone.

  • 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 neobanks to capitalise on. Neobanks can help with this banking void in the region.

The regulators in the Middle East and North Africa region have been prioritising financial inclusiveness through digital transformation by 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 neobank is a standalone bank in itself with appropriate banking licenses to offer its services. Here the neobank is in charge of all front end and back end operations. Some examples of such a neobanking model are N26, Monzo, Atom Bank etc.

  • Whereas a front-end focused neobank is dependent on a legacy bank to funnels their 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 neobanking 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 digitise 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 digitised 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 neobank because it has offline branches, too; neobanks 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 COO of PayNet Systems, one of the leading digital banking and payments solution. 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.

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