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To make banking simple, convenient and meaningful, some financial technology (fintech) startups are launching neo-banks for retail customers in India. These fintechs are partnering with traditional banks and offering better solutions by using technology such as artificial intelligence (AI) and machine learning (ML).
Features of Neobanks
- Since the Reserve Bank of India (RBI) tightly regulates banking licenses, neo-banks are providing services built on the offerings of a traditional bank.
- For traditional banks, it is difficult to change their legacy technology for which they have already spent a lot. Neo-banks, on the other hand, are small and nimble. They can use the latest technology and offer solutions to customers’ banking problems.
- Globally, neo-banks offer 100% digital banking services. The growth is driven by their low-cost model with no or low monthly fees on banking services.
- Digital banks are often the online-only subsidiary of an established and regulated entity. Neo-banks, on the other hand, exist solely online, without any physical branches, in partnership with traditional banks.
- Neo-banks, typically, identify a problem area in banking and offer solutions. In India, they are offering solutions for expense management, investments, forex needs and so on.
- Examples:
. Niyo started its services for customers using their debit cards abroad, to promote it as an alternative to forex cards. It also provided better control of the card through an app. A user could activate and deactivate the card, check the prevailing exchange rates, set limits, and so on.
. Finin uses AI and ML to analyze the spends of customers and offers to help them have more control on their finances. It generates reports with insights on their spending and saving behaviour.
- All the transactions done on their platforms involve the partner banks. The debit card or the savings account that these neo-banks offer belong to the partner banks, which are governed by RBI.
- While these entities may be calling themselves ‘neo-banks’, they are not allowed to offer any of the key services that a bank provides such as deposits, interest on deposits or loans. They are also not regulated by the Reserve Bank of India.
