In this gilded 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-first era, people want to save their time by not visiting a bank or waiting in a queue. Technological disruptions have spawned paradigm-changing solutions like fintech, insurtech, and regtech. The latest technological disruption in the banking sector is neobanks, exclusively digital banks that operate online without any brick-and-mortar branches. Neobanks are now being heralded as the future of banking.
According to statistics, the global neobanking market size stood at $47.39 billion in 2021 and is estimated to grow at an astronomical rate (compounded annual growth rate) of 53.4 per cent from 2022 to 2030. The outbreak of the global pandemic has further accelerated the adoption of neobanking. Also called challenger banks, neobanks are challenging the way conventional banks operate and serve their customers. Let us try to demystify the concept of neobanks and understand how they can evolve banking.
Since digitalisation and the pandemic, the traditional retail banking model has failed to retain customers. Evolving customer expectations have given rise to a new breed of banks called neobanks. These financial institutions operate exclusively online, without any physical branches, and provide all banking services, and more, digitally. By leveraging technology, such as artificial intelligence (AI), automation, and cloud computing, neobanks offer highly personalised services at lower costs. That said, in India, neobanks have to partner with traditional banks to provide their services, as the Reserve Bank of India (RBI) doesn’t permit 100 per cent digital banks as of now.
Perhaps the greatest advantage neobanks have over traditional banks is their exclusive digital presence. Since neobanks do not have to invest in brick-and-mortar branches and infrastructure, they are able to enjoy lower operational costs. As a result, neobanks are able to pass these benefits on to their customers by way of low or no fees and high-interest rates on deposits. Thanks to an online-only mode of operation, they are able to offer seamless international payments and money transfers at very low rates.
Neobanks are able to leapfrog the gaps in conventional banking by offering round-the-clock digital services. Their mobile-first model enables them to meet the evolving expectations of millennial and Gen Z customers. By leveraging the latest technologies like artificial intelligence, automation, and blockchain, they are able to offer innovative solutions, faster response times, better customer service, and quick on-boarding. Their interactive user interface, 247 access, and digital operations are elevating the customer experience.
The traditional banking system is often time-consuming and has intricate loan disbursal processes. But neobanks are optimising their loan processes, too. With little or no paperwork and online verification, applying and qualifying for a loan is as easy as signing up on a website. With easy access to the amount and interest rates, customers can choose which loan they want and also get instant loans as soon as their credit scores are verified.
Since neobanks operate exclusively online, they leverage advanced technologies to build secure and robust banking structures. With cybersecurity at the forefront of their operations, neobanks aim to increase customer safety and satisfaction. By harnessing the powers of artificial intelligence (AI), robotic process automation (RPA), and cloud analytics, they build secure systems that are fast and able to mitigate cyberattacks. With security features like biometric verification, 2-factor authorisation, and encryption, neobanks are safe and convenient to use. Customers can access their bank account and financial information anytime, and also manage their money more effectively without ever visiting a bank branch.
Neobanks have the potential to be more than just the latest buzzword in the fintech community. Anchored by regulatory hurdles, neobanks have yet to unleash their true force. In the years to come, the banking sector could witness an influx of neobanks that will change the face of banking forever. With zero legacy baggage and endless technological possibilities, neobanks can enhance the customer experience as well as streamline complex banking processes. As technological transformations continue to disrupt the world, neobanks, too, could one day eclipse traditional banks and become the future of banking.
The author is the CEO and co-founder of Getafix Technologies.
(Disclaimer: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
