Neobanks are banks that have no physical presence and only operate digitally. Therefore, there are no bank managers or cashiers. These are not real banks but fintech companies allowing users to open bank accounts and access services like ATM cards. Neobanks uses advanced technology like AI, cloud computing, and automation.
How are neobanks different from traditional retail banks?
Neobanks are the future of banking and are vastly different from physical banks. The significant difference between Neobanks and traditional retail banks lies in:
- Location – Neobanks have no physical branches and users use apps to access their features. Traditional banks operate both online and offline though the interface of their apps is not as user-friendly as those of neobanks’.
- Fees and interest rates – As Neo banks don’t invest in building physical infrastructure, their operational cost is much lower. Thus, they can afford to offer higher interest rates and lower to zero fees. They charge a minimal amount for money transfers and international payments.
- Customer experience – Neobanks offer digital services 24×7. Plus they offer innovative solutions by implementing advanced technologies. They also have a much faster onboarding process, better customer service, and quicker response time.
- Popularity – Neobanks are relatively new and don’t yet enjoy the popularity of traditional retail banks.
- Loan processing time – The loan disbursal process of neobanks is much simpler and the processing time is much lesser. Loan application is much easier because of the online verification requiring no paperwork.
- Security and technology – Neobanks have a robust security system and offer more customer safety. Cybersecurity is of prime importance as they wholly operate online. They use 2-factor authorisation, biometric verification, and encryption technologies.
The impact of neobanks on traditional banking
Neobanks are forcing traditional banks to be innovative and adapt to changing financial landscape to survive the competition in the banking industry. The challenger banks are making it harder for traditional banks to retain their customers. The rising of neobanks is impacting financial institutions in the following ways:
- More competition – Traditional banks are facing stiff competition as neobanks are more customer-friendly and offer lower fees and higher interest rates.
- Disruption of traditional banking models – Neobanks do not have to bear any overhead costs as they offer all services online. Traditional banks have to maintain physical branches and cannot offer higher interest rates and lower fees.
- Evolving customer experience – Young customers are more comfortable with digital technologies and prefer neobanks more. Customers expect to have a seamless experience in traditional banks too.
- Partnership collaboration – Neobanks are tying up with traditional retail banks so that they can offer the best of both worlds to their customers.
The article has been authored by Bahaa Abdul Hussein and has been published by the editorial board of Fintek Diary. For more information, please visit www.fintekdiary.com
