Neobank is a type of bank that has no physical branch to carry out its service, this bank operates entirely on a digital platform, where all the transactions are carried online using the internet. The concept of Neobank had developed in the UK in 2013 to create a bank that works digitally.

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With the advancement of fintech, i.e. financial technology, numerous changes are seen in the financial sector or service, and one of the major developments in financial services is Neobank. With the launch of neobank, consumers do not have to spend their time visiting the bank and all transactions such as money payment, money transfer, investment, etc. are carried out online on a cell phone or smart device.

How does it Work?

Several transactions carried out by traditional banks are also carried out under neobank, but the business models used by both banks are entirely distinct. The services provided under the Neobanks are customized and tailored to the customer’s needs with the aid of technology. The decision-making mechanism of a neobank is guided by data-driven decisions. As they work entirely online, an enhanced digital business model is used to carry out their operation, keep a record and monitor the activities of their customers. Customers can resolve their queries at any time with the aid of neobank and do not have to wait or rely on a bank to respond, but under the traditional bank, they rely on bank executives to resolve their queries.

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Types and Example:

  • With Bank License: In this case, if the neobank acquires a license to operate on its own, this implies that it can completely operate on its own. They can accept deposits from the public and carry out all their activities on a daily basis. In this case, if neobank acquires a license to operate on its own, this implies that it can completely operate on its own. They can accept deposits from the public and carry out all their activities on a daily basis. They don’t need to collaborate with the other financial institutions to function as they themselves can become an entity to carry out their activities. Examples of various neobank with the license are InstantPay, NiYo, RazorpayX, etc.
  • Without Bank License: If the neobank operates in this situation, they cannot accept public deposits and cannot carry out the various operations on their own. They will have to collaborate with the numerous traditional banks and operate under them. In India, RBI has not permitted neobank to operate entirely online however various online financial transactions are carried out with the aid of specific banks’ online services such as net banking and various other applications such as Paytm, Amazon pay, etc.
  • Beta Bank: Beta bank is a type of joint venture or subsidiary of various banks that exist in the market that provide financial services through the parent company license. These banks are created to enter the new market and to offer new services. Various example of a beta bank is Simple i.e. a joint venture between Bancorp and BBVA (Banco Bilbao Vizcaya Argentina) and another example of a beta bank is AiBank i.e. a joint venture between China CITIC (China International Trust Investment Corporation) Bank Corp and Baidu (A Chinese multinational company specialized in internet-related service).

Advantages of Neobanking:

  • In contrast to traditional banks, opening an account with a neo-bank is quite easy. In the case of traditional banks, clients must fill out various forms and it takes time to open accounts. However, with neobank, their account can be opened instantly with a phone.
  • Without any credit card formality, customers can exchange money internationally because they are fully working online.
  • It provides customized services to customers according to their needs and requirement.
  • The details about their account balance and transaction can be made available to them all the time in the app.
  • Neobanking service also provides details to their customer about their overall expenses and give them various saving options according to the requirements of the customer.
  • With the help of neobank, the speed of transaction is also increased within no time your transactions are made confirm.
  • As neobanks operates digitally and not require any physical branch so various costs like infrastructure, place, ATM service, etc. do not occur. Hence, the cost of service providers under neobank are less costly and some cost depends on the need of the customer.
  • Security is a major factor to be considered for such online payment and neobank use various applications like 2-factor authorization, encryption technology, Biometric Verification, Role-Based Access Control, etc. to protect the data for their customer.

Disadvantages of Neobanking

  • This service is not useful to the person who is not friendly with technology thus; they cannot understand the use of such service.
  • Sometimes a need occur to visit a bank for some transaction for in-branch services such as loans, car loans, or business loans but with neobank, this is impossible since no physical branches are available.
  • Since Neobank has its own unique technology for the fund’s transfer but if the same software is not available to the seller, the customer cannot make a payment which becomes a limitation.

Final Thoughts:

Thus, neobank has its advantages in its own way but due to some limitations, this service is not implemented in every country. In India major portion of the population is less user-friendly with technology. Hence RBI has maintained various regulations in the economy to implement this service.


Author: Charmi Mehta

About the Author: Charmi Mehta is currently pursuing MBA with a specialization in Finance from the Department of Business Administration, Bhavnagar. Charmi is very much interested to work with data and its analysis and she is also fascinated by the financial market.


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