What is a Neo Bank? Check How They Differ from Traditional Banks

In recent years, India has experienced a rapid rise in fintech companies. These entities are transforming how financial services are provided. Neobanks are a key part of this change. They are different from traditional banks and focus more on providing digital and technology-driven solutions. Primarily, their goal is to make banking more accessible and user-friendly.

Most importantly, these neobanks do not have physical branches. They use apps, automation, and online platforms to offer modern banking experiences. In this article, let’s understand the meaning of neobanks in detail and see how they differ from traditional banks, payment banks, and even digital banks.

• Neobanks are fully digital. These banks operate exclusively online through mobile apps.
• Some common banking services offered by neobanks are account opening, money transfers, issuing credit cards, and extending loans.
• As per RBI regulations, neobanks cannot have their own banking license. So, they collaborate with traditional banks to provide banking services.
• Neobanks target first-time earners and help them build their credit history.

Neobanks are financial institutions. They operate “entirely online” and offer banking services through mobile apps. They do not have physical branches, which makes them 100% digital. Some common services offered by them are:

• Account opening
• Money transfers
• Payments
• Lending
• Deposits

Next, it must be noted that due to regulations from the RBI, neobanks can not operate independently as they are not issued their own banking license. Thus, they partner with traditional banks to provide financial services and products.

Neobanks and traditional banks differ primarily in their approach to providing services. Traditional banks, like HDFC or ICICI Bank, have physical branches and ATMs. They offer both in-person and digital banking. Neobanks are 100% digital and provide all services online or through apps. For a greater understanding, let’s study some more differences:

• Physical presence
  Traditional banks have branches and ATMs, while neobanks operate exclusively online.
• Customer base
  Neobanks mainly attract millennials and Gen Z. Meanwhile, traditional banks serve all age groups and larger businesses.
• Funds
  Traditional banks have larger financial resources, whereas neobanks are still growing and have limited funds.
• Technology
  Neobanks use innovative technology. They comparatively offer smoother, glitch-free, and more user-friendly mobile apps.
• Personalised services
  Traditional banks offer personalised services like relationship managers, which neobanks generally do not provide.

For most, the terms neobanks and digital banks are analogous. However, both these entities operate differently and serve distinct needs. Digital banks are online extensions of traditional banks. They support large financial institutions and may also have some physical branches. In this way, they offer a mix of online and offline services.

Neobanks operate entirely online with no physical presence. Their focus is solely on providing services through apps and websites. Mostly, they serve customers who prefer a fully digital experience without visiting any branch.

Additionally, we can also compare neobanks with “payment banks”. Payment banks are regulated by the RBI and focus only on providing basic banking services like deposits and transfers. They cannot offer loans or credit cards. In comparison, Neobanks provide a wider range of services, such as issuing credit cards and offering loans.

Neobanks are 100% digital financial institutions. They operate without physical branches which lets them save money on overhead costs. Primarily, these banks deliver tech-based banking services through mobile apps. Since they cannot obtain a banking license from RBI, most neobanks partner with traditional banks.

Notably, neobanks offer accounts with “no fees” and target young people who are just starting to earn money. Additionally, they provide services that help these individuals build their credit history, such as small loans or credit cards. In this way, neobanks help young earners establish a good credit score, which is important for taking larger loans or getting better interest rates.

For more clarity on how they function, check these points:

• Neobanks offer technology-based banking services via mobile apps.
• They partner with traditional banks to handle customer funds and lending.
• Neobanks focus more on customer experience and satisfaction.
• They even rely on customer data to personalise and improve services.

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