There was a period when people had to knock on a bank’s doors to shift some money from one account to another. Lockers were a privilege, cheque leaves ruled, and the long queues to get something done, common.
Fast forward a couple of years, can you now think of having an account in a bank with no physical branches or one that runs explicitly online?
A hotly discussed topic in the FinTech realm, neo-banks are making strides with regard to how people perceive banking. So much so that numerous private equity (PE) and venture capital (VC) investors are heavily investing in various neo-banking start-ups. To date, Indian neo-banks have raised funding worth over $230 Mn.
Neo-banks have transformed India’s banking landscape, with an aim to provide low-cost extended banking services to the country’s unbanked population.
What’s Driving the Focus on Neo-banking?
Hassle-free On-boarding and Account Creation
Conventional banks require their customers to visit the branch several times to open an account or leverage other financial services. Neo-banks can complete the process on the move. With neo-banks, customers don’t need to visit branches, thus making it easier, faster, and more convenient, particularly amidst the COVID-19 crisis.
Accounting and Automated Reconciliation
Several businesses have to spend hours for payment reconciliation, looking into statements through a fine-toothed comb to tally every transaction and expense. Despite that, the chances of errors are super-high. Neo-banks automate this bookkeeping process with virtual accounts, all of which have an account number that lets neo-banks monitor and identify the source. What is amazing about the process is that it can be automated and linked with their current dashboards and ERPs while being trackable in real-time.
To ensure that customers can run their accounts in total privacy, neo-banks come with several in-built redundancies, such as encryption, biometric verification, and other security measures. Moreover, they offer high-security features, including freezing and locking any time through the app. Besides, neo-banks have introduced leading-edge role-driven access control and two-factor authentication to keep ransomware attacks in their applications at bay.
Neo-banks offer round-the-clock support to their customers with Robo advisors and chatbots advisors that provide automated assistance to customers as per their transaction history. In addition, AI-powered software lets neo-banks run through customer data, account information, and trends and deliver custom financial services to customers as per their requirements. Further, neo-banks utilize customer earnings, recommend demographic-based programs, and enable customers to make their own investment decisions.
Seamless Payments Gateway
Most conventional banks levy hefty fees for international transactions. But, neo-banks remove the Forex mark-ups, a fee imposed during currency conversions, in overseas payments. Moreover, neo-banks leverage application programming interface (API) banking to ensure effortless and instant online money transfers across payouts – with easy beneficiary additions and without any cooling periods.
Neobanking in India: On The Verge Of Boom
If the first FinTech wave included InsurTechs, online payment, and wealth management, the second wave is led by neo-banks.
In India, neo-banks are picking pace and disrupting conventional banking models – and that too in a relatively short amount of time. With traditional banking heavyweights are grappling to keep up with tech-first operations, neo-banks will be among the biggest trends of 2021, and beyond.
And as India gets more tech-savvy, neo-banks will become a norm in the country and come out as one of the critical areas of innovation. Even though conventional banks are taking more notice of this and investing considerably in technology, startups will have the edge in terms of innovation and digital-first plays.
IIM Kozhikode, in collaboration with WileyNXT, is offering an Advanced Management Course in FinTech that will help students develop business strategies using disruptive technologies – RPA, AI, and Blockchain – with a deep knowledge of the FinTech environment, business models, and regulations in India’s BFSI space.