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How Neo Banks Are Winning Over Small Business

Meet the next BIG THING in the fintech space!

Be it a business or an individual, our dependance on banks go way back to the 1750 BC. Yes, that’s how old our banking needs are. However, with the growing craze of fintech, banks are losing its essence and going digital.

Neobankers classify as the new age banking providers and was projected to reach $50.8 million in 2020. These app-based digital banks are using technology to unbundle traditional banking and taking over the space with speed. Today, the word ”Neobank” has become the latest buzz of the fintech town. 

In the last few years, we have seen many new neobanking platforms emerge which has disrupted the finance sector at a global level. Being a hot topic in the media, the term has gained a lot of momentum and attention. Neobanks have registered a CAGR of 50.6% during the period of 2016-2020.

After the advent of neobanking, the way people see and consume financial services has changes rapidly. Using the state of arc tech neobanks are taking over the customers and winning more hearts through its agility and simplicity. To put it straight, neobanking is the next big thing in fintech and we know it. 

What is Neo Bank?

A neobank is a kind of digital bank without any branches. Rather than being physically present at a specific location, neobanking is entirely online. They don’t have a bank license of their own but count on bank partners to provide bank licensed services. 

Neo Banks offer multiple financial services from money transfer to opening a bank account. Neo Banks partner with the traditional banks and help them acquire the customers in the most seamless manner. They appeal to tech-savvy consumers who don’t mind doing most of their money management through a mobile app.

How does Neo Bank Work?

A neo bank is nothing more than an app for a customer. They have a completely different model. But, like traditional banks, neobanks do make money marginally between money inflow and lending. 

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 increase their efficiency and provide better customer services.

Most neobanks offer limited or no credit to limit their risk, which helps them keep costs down. However, some neobanks offer loans for individuals and businesses through partner banks and credit unions. Banks which do not have the infrastructure or knowledge about these collaborate with the neo banks to get the best of both worlds.

Why Are Neo Banks Gaining Popularity In The UK And US?

With over 15 million consumers in the financial and banking sector, 50% have been acquired by neobanks. This extraordinary growth has sprouted from their low-cost business model. This has resulted in a high adoption rate in small and medium sized enterprises. For any banking startup to be successful, it requires capital from the investors and trust from the people who are going to open their accounts in it. Neobanks have both, which is helping them gain popularity in the UK and US very fast.

One of the most popular neobanks Revolut in UK saw a growth from 3 millions users in 2018 to a whooping 8 million in 2019. Must say, the growth trend has been quite impressive. Apart from all the other trends that have been seen through these years, here are some more reasons that have made neobanking so successful in the UK & US.

Convenience: The first and foremost important aspect that neobanking gives its customers is convenience. It has brought down the overall turn around time from days to a few minutes and has also become the most preferred way of banking.

Cost Effective: As compared to traditional banks, neobanks are very cost effective. This is because they do not have to bear the cost of physical locations and also save a lot of cost on physical resources and manual efforts. This brings down the cost of banking and benefits the customer in a wholesome manner. 

Money Tracker: With neobanking in town, small businesses can transact money a lot easier and effectively. Businesses are able to track money in real-time and in turn are increasing their overall business productivity. More importantly, businesses can ease their payouts to their vendor, employee, and customers without the hassle of dealing with multiple platforms.

Smart Reporting: Neo banks provide an updated record of your balance everytime you update it. With this, you can see the details of all your translations under one single App. Furthermore, it also provides an overview of your expenditure and saving goal. This helps small businesses have a clear financial idea and helps them take insight driven decisions.

What Are Some Of The Most Useful Tech Features By Global Neo Banks?

Digital Onboarding & Account Opening: Neobanks have made banking easier. When it comes down to customer satisfaction, 90% of the users are highly satisfied in the US with neobanks while the top 50 global banks in the world managed to satisfy their customers to just 65%. 

International Payment & Remittances: With neobanks, you can now use debit cards in foreign countries without any additional convenience fee and at live exchange rates at the moment. This not only helps save extra cost but is also profitable for both small businesses and individuals. 

Money Tracking & Account Aggregation: Neobanking simplifies tracking finances and account aggregation. It has brought down turn around time to a few minutes and has added on to the percentage of customer satisfaction.

Lending & Credit Facilities: As compared to traditional banks, neobanks are capable of providing credit facilities at a lower cost which makes it easily accessible to borrowers and a first choice for small businesses. 

Neo Banks in India?

While Neo Banks are scaling up their presence very aggressively, there are lags. The major lag is the sticky customers and lack of regulations. The Reserve Bank of India  has not permitted 100% digital bank models in India yet. This will keep the destination of Neo Banks blurry. They don’t know whether they will be allowed to lend on their books and raise deposits on their credibility as an individual bank. 

Presently, neobanks in India are addressing the regulatory predicament by outsourcing their banking responsibilities to those with licences, creating strategic partnerships with traditional banks and providing amplified services on behalf of existing ones. This model is already being used worldwide by some of the biggest names in neobanking.

Neo Banks has magnetise many millennials and population from the urban areas as they offer an ease of access and better service. This helps traditional banks also as they do not have to bother about these things and increase their reach to newer customers. They cater to digital onboarding, Low cost UPI transactions, interchange fees. We at pirimid offer KYC onboardingand EWS systems to neo banks for easy integration of customers and lending facilities.

About Pirimid 

We are a tech consulting and development firm specific to financial services clients. 

We have worked for multiple neobanking startups and developed solutions for them globally across MENA, USA, and APAC region. We have automation solutions specifically curated for neo bank startups to digitize their operations and use sophisticated AI-ML tools for fund management.

We believe in providing access to advanced technology at affordable costs and deliver tailor-made solutions which are designed to automate and help you step forward into the world of digitization, where a more profitable and promising world awaits you.

 

 

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