What are Neo Banks ?

The financial industry is introducing new products and services with ever changing pace. Digital banking has given us  a new category of banks known as “neo banks,” which have definitely not overtaken the traditional banking but have caught the interest of many entrepreneurs and investors in them. What are Neo Banks?

Neo Banks are fintech companies which offer Banking as a service . These are digital banks with no physical branches.  Neo-Banks don’t have a bank license of their own as virtual banking licence is not granted and are assisted by banking partners to provide services. Neo Banks are 100 % digital banks, However in India, regulations as such by RBI, do not permit it. Thus, the fintech startups which once promised to replace the banks in India are just complementing banks with better user interfaces and services.These companies  tie up with traditional banks and provide  a technology-driven banking system that is fast, customer-friendly and cost-effective.
In India, there are startups like Razorpay, Niyo,  Yelo, InstantPay, etc that have partnered with traditional banks to offer better banking solutions by using technology based on  artificial intelligence (AI) and other machine learning methods. Neo banks emphasize on digital operating models with mobile-first approach. India’s largest public sector bank like  SBI have their YONO system, that has similarity  to the neo bank model of operating completely online, almost eliminating a customer’s need to visit a branch. These neo banks utilise the traditional banking infrastructure through partnerships,  in turn, offering  partnered banks to utilise their state-of-art technological processes  in customizing  reports, processing bulk transactions, identify failures in the system, automate payment schedules, etc.  A digital bank is often an online-only subsidiary of an established bank  while neo banks exist in association  with traditional banks in India without any physical branches and, to comply with RBI regulations.

Should you open an account with them?

Neo banks are for the tech-savvy customers, however, it is about money and the idea may appear to be scaring to a few. If you like the prospects of these tech-driven,  quick and new-age banking models, you can have an account open on a trial basis and start a small operations with them. As mentioned before, these banks are partnered with an existing traditional bank, which is governed by RBI. If you are alright  with the names of their partners, you can try their product or service but abstain  making it your essential bank account.

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