Fintech is the future of finance, and neobanking is the future of fintech.
When people are used to ultra-fast 5G internet speeds and 15-minute food delivery, waiting an entire day for a transaction to go through gets frustrating.
Traditional banking, which has been the go-to for hundreds of years now, has not been able to keep up with today’s tech-savvy customers. Long waiting times, security issues, and fixed working hours are a few of the problems plaguing legacy financial institutions today.
And so the fintech world came up with a solution: neobanks.
Before we dive into whether neobanks are better than legacy finance, do we know what neobanks are?
How does a neobank work?
“Neo” means new. These are new-age banks without any physical location, present entirely online. They provide digital, mobile-first financial solutions for payments, money transfers, lending, and more.
They allow customers to make deposits and withdraw money. They offer debit cards, investment facilities, and more. They even provide credit and lending services.
However, most neobanks do not have a banking license and cannot operate stand-alone — most neobanks partner with licensed banks to provide financial services.
So are they really better than traditional banks?
Yes, they are.
1. Lower Charges
Neobanks don’t have physical branches, which means they’re not spending money on rent, electricity, infrastructure, and other expenses that eat away at a traditional bank’s bottom line.
These savings are passed on to customers in the form of lower fees and higher interest rates. It also means neobanks have more resources, be it money or manpower, to dedicate to making the banking experience better for their customers.
2. Ease of Use
The process of opening an account at a traditional bank is long and frustrating. There are forms to be filled out and waiting time. Some banks even require the customer to visit the physical branch and will also visit their home to verify their address.
With a neobank, everything is digital. Users can create their accounts on their mobile phones, sitting on their sofas at home. The account is ready to use in a matter of minutes.
Tasks that typically require a visit to a physical branch, like depositing a cheque, can be done on the go from a user’s mobile phone or laptop. This ease of use has become an important feature – especially in a post-COVID world, where people prefer the comfort and safety of home.
3. Smoother UI
In 2018, financial institutions’ top strategic priority was improving the consumer’s digital experience.
Neobank apps are built to improve the digital banking experience. Neo-apps are simple, powerful, and aesthetically pleasing. To keep up with the times, traditional financial institutions have been forced to develop their own digital offerings…
But the apps developed by traditional brick-and-mortar banks are held back by glitches and lags because these banks are not digital-first. Neobanks are.
Neobanks can hire the best talent on the market to develop some of the smoothest, sleekest banking experiences that fintech can offer.
4. Lesser Restrictions
Neobanks are not actual banks – they don’t have banking licenses and are not regulated by the RBI. As a result, they enjoy slightly more autonomy than traditional banking institutions. They are not subject to legacy banks’ policies and requirements and can, as a result, keep their costs low.
Should I make the switch?
- How tech-savvy are you?
- Are you experimental, or do you prefer the tried-and-tested route?
Neobanking is for tech-savvy, experimental people who want to get the jump on a rapidly growing sunrise industry. New-age banking is new. It is still in nascent stages but is all set to revolutionize the dusty old financial services industry.
It’s not only neobanks leading this revolution – people are embracing digital payments at a large scale; these days, even tender coconut sellers on the roadside have a QR code for payments!
Our recent report explores the rise of digital payments in post-pandemic India. According to the report, online payment transactions more than doubled in 2021 compared to 2020, crossing a billion.
Considering these numbers, we see that neobanks have tons of potential in India. With the government promoting UPI infrastructure and pushing for more businesses to adopt technology, it is only a matter of time before neobanks become mainstream.
Neobanking for business
Earlier this year, we partnered with the International Data Corporation (IDC) to understand the challenges Small and Medium Enterprises (SMEs) face due to reliance on legacy financial systems.
We learned that the annual average loss suffered by SMEs depending on legacy systems is INR 67 lakh per SME. Businesses that rely on traditional systems often have to carry out banking operations manually, running the risk of repetitions, errors, and unnecessary delays.
Businesses, especially SMEs, would benefit immensely from switching to neobanking.
With a neobank like RazorpayX, founders can supercharge every aspect of their financial operations.
- Save time, reduce manual effort and eliminate errors with instant payouts
- One single, powerful dashboard for all your money management needs
- Intelligent invoice generation for vendor payments
- Smooth integrations with all major accounting platforms
And more where that came from. Your business is in 2022 – it’s up to you to ensure your banking is, too.
What is a neobank?
Neobanks are new-age banks without any physical location, present entirely online. They provide digital, mobile-first financial solutions for payments, money transfers, lending, and more.
Are neobanks better than traditional banks?
Neobanks are tech-first and offer benefits like smoother UI, automation, faster response times, and lower costs when compared to traditional banks. However, since most neobanks don't have a banking license, the range of services they offer is limited.
How can businesses use neobanks?
Businesses can benefit from the automation, cost-cutting, and speed neobanks offer. Neobanks are also innovating much faster than their traditional counterparts, and businesses can be sure they're ahead of the curve.
What are some of the best neobanks in India?
With the rising popularity of neobanking, there are more and more such new-age banks everyday. The top few are Fi Money, Jupiter, Freo, and RazorpayX.