Neobanking
In
the 21st century almost all the industries are being disrupted by
technology. Now with the onset of the 4th industrial revolution the
banking industry is undergoing a great transformation leading to a whole new
niche called Neobanking. In this article we explore what is neobanking and how
it is evolving in the current banking landscape
BY RATTANDEEP | 2 Min Read
A neobank is type of direct bank which is based in a central location
and provides all its the services in a fully online way. Neobanks rely on newer technologies like
artificial intelligence and machine learning which is vastly leveraged to
exponentially improve user experience. This allows them an edge over
traditional banks in terms of user experience, reach and the types of services
that they can offer. Neobanks may exist independently or they may partner with
traditional banks. Such partnerships help neobanks to conform with the
regulatory structure of the country. The global size of the neobank industry is 18.6 billion dollars which is expected to grow by
46.5% CAGR between 2019 and 2026, thus growing to over 394.6 billion dollars in
market size.
The main
benefits of promoting neobanks is that the help to provide banking services to
people who were previously underbanked, due to the physical constraints of
traditional banking. This helps unlock vast amount of economic potential as it
allows for MSME’s situated in rural and semi urban arears to access the
services provided by traditional banks. Even though neobanks have a business
model similar to traditional banks which consists of depositing and lending,
their charges are much lower than that of normal banks because they don’t have
any exorbitant fixed costs. This helps improve the poor community’s access to
banking services given the increased affordability of neobanks.
Moreover
neobanks provide almost all services real time, with great amount of
personalisation because of advanced data analytics used by such banks. This
also helps to increase the level of security offered by these banks. They have
also served as aggregators by providing a plethora of services on a single platform.
But these banks
are not without their own problems. They don’t offer products like mortgage
loans, car loans. Another problem is that people don’t prefer neobanks for
large ticket loans or contracts, thus leaving only small value customers for
them. Moreover, they are relatively inexperienced in operations management vis
a vis traditional banks. They also have certain regulatory roadblocks for them as
regulations have often proved stifling to their growth.
In conclusion,
neobanks are in a unique position given their low-cost model and increased
reach. They have the potential to be great disruptors in the banking space with
fintech industry being the leading example. But many of these firms have to
work on their profitability, which can happen if they convince traditional
banks of the need for providing their consumers with seamless banking
experience. The main questions that remain for these companies are how they are
going to manage issues related to expansion of products and services,
regulatory and compliance issues and data security concerns along with the
embrace of these new technologies by traditional banks