What is a Neobank? Everything You Should Know

Lately, neobanking has become a buzzword in the fintech community. The term has gained momentum since it's been taking the spotlight on the news and media. But do we know what it's all about?

Neobanks are taking over the fintech industry by a storm, on a global level. We see a new player on the market every day whose primary intention is to simplify financial services to a greater extent. Let's understand what it truly means.

What is Neobank?

A neobank is a kind of digital bank without any branches. Rather than being physically present at a specific location, neobanking is entirely online.

It's a wide umbrella of financial service providers who beseech today's tech-savvy customers. Neobanks can be called fintech firms that provide digital and mobile-first financial solutions payments and money transfers, money lending, and more.

Neobanks don't have a bank license of their own but count on bank partners to provide bank licensed services. 

As the financial landscape is shifting towards customer experience and satisfaction, a gap has developed from what the traditional banks offer to what customers expect. And, Neobanks are making an attempt to fill that gap.

Most traditional banks are bogged down by their legacy-based infra. So, they crumple when it comes to aiding SMEs with financial services like providing a payment gateway, an invoicing software, multiple views of cash management, among others. 

This disparity, along with the explosion of mobile technology, it only makes sense that banking services can coalesce with other financial services.

Why Neobank?

In recent years, we've seen a massive drift in the finance industry. With over 2000 fintech players in the country, digital payments are embraced at such a large scale. Customers are moving away from physical banks and physical cash, and more towards online banking and wallets. 

In our recent report, we talked about how India is moving towards an era of rising fintech. We talked about how Indian consumers transact digitally, and the numbers are growing on a rapid scale. More and more people are getting comfortable making online payments through Google Pay, Paytm, PhonePe, and more, now more than ever.

If we think about these numbers, we can see the potential neobanks have in the country. Neobanks provide the fluidity that traditional banks don't. They can easily sustain themselves and turn out to be profitable.   

How does a neobank work?

Unlike a traditional banking system, neobanks have a completely different business model altogether. But, like traditional banks, neobanks do make money marginally between money inflow and lending. 

And, since there isn't a physical location and that they're completely online, the customer fees are slashed by a significant amount. Because Neobanks are customer-centric, they provide personalized services to their customers that are fired up via technology. 

Data-driven decisions drive the decision-making process of a neobank. Since their platforms are also very modernized, it becomes easier for them to collect and analyze data and understand how their customers behave in the neobanking ecosystem. Based on these observations, they create cohorts of customers based on their actions rather than merely sticking to one or two data points. 

What are the advantages of neobanking?

Since neobanks are completely digital, they open up a wide window of advantages to a customer. Here are some key points that may interest you into moving towards a neobank.

Hassle-free account creation

We're all fully aware of the pain we need to go through to create an account in a traditional bank. The process may not be as elaborate as before, but the hiccups aren't completely gone. This tedious process is completely eliminated while creating an account with a neobank. 

Neobanks don't have a storefront like we discussed earlier. So, you don't have to go anywhere to create an account. You can do it in a couple of simple steps, right at the comfort of wherever you are, and on your phone!

And, you'll have the account ready in just a couple of minutes!

Seamless international payments

In the case of traditional banks, it isn't always that we get a debit card that can be used anywhere in the world, or transact internationally. We may have to ask for an upgrade, make a request, and finally have an international debit card.

You don't have to worry about any of that if you have an account in a neobank. You can use your card to make purchases, or transact while you're abroad, with current exchange rates.

User-friendly interface

Neobanks are all about providing an excellent customer experience. This also means you don't have to work through a glitchy netbanking site anymore. You don't have to worry about a mobile app that isn't very responsive.

Neobank apps are very crisp, clean, and user-friendly. They're highly responsive and well-designed to suit the needs of a customer. The ease of use is what makes the app such a hit amongst its customers.

Smart reporting

Transactions made via neobanks are immediate. The transaction details are populated instantly providing you with an up-to-date balance on your account, at all times. All of your transactions and payments appear on your app and, you don't have to go anywhere else for this information. 

The neo-app also provides you with an overview of your expenses, along with a savings goal which can be customized to best suit your needs. This helps you manage your finances in a much better and informed manner.  

Neobanks are great for businesses, too!

So far, we talked about how much customers can do with neobanks. Now, let's understand how businesses can make the most of neobanks.

If you're a business, you often have to deal with long, tedious processes involving payments and disbursals. Often, you end up spending hours and hours on manual efforts every month because of multiple buggy software and complex infra systems.

Money movement views can also be super tricky because of complexity. Oh, and let's not forget that you'll receive no insight on payouts to make impactful business decisions.  

With a product like RazorpayX, you get to simplify, accelerate, and supercharge every aspect of your financial operations! From accepting payments and managing cash flow to reconciling transactions and flexible payouts.

  • You end up saving 10x time because of instant payouts with reduced manual effort  
  • You provide a superior customer experience 
  • You'll have access to a unified platform that helps you make, control, track, and analyse all forms of money movement from its powerful dashboard.
  • You also manage and track money movement to vendors, customers, employees, etc. through in-depth Financial CRM.

The result, you ask? You make informed, impactful business decisions with off-the-shelf analysis on payouts mode! And, there you have it, some light on the buzzword "neobanks!"


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