Anytime some bank work pops up out of the blue, have you noticed how it stresses most of us out? Especially if it’s something that requires us to visit the branch in person. What if I told you that there’s an alternative to this? Add a complete virtual realm to your required banking services and what you get are Neo Banks.

Though the concept of neo-banking has been around for nearly a decade, the first few neo banks of India have emerged only in the last five odd years. Neo Banks are full-fledged banks, but on your phone. No more lunch-hour hubbub, shuffling to multiple counters, and the long wait, if not long queues, that all add to the annoyance of visiting a bank.

But should you make the switch from your traditional banks to these contemporary, online banks? Are they secure enough? What services do they offer? Let’s dig deeper for answers.

What are Neo Banks?

The word NEO means new. So, Neo Banks are new-age banks that have their entire set-up online. No brick-and-mortar branches. These banks do not have a banking license because they are not recognized by the RBI. Therefore, they cannot function on a stand-alone basis, unless they partner with licensed banks. This partnership allows Neo Banks to provide a whole gamut of services that are at par with regular banks. Examples of such partnerships are Jupiter with Federal Bank, and RazorpayX with RBL.

How are Neo Banks different from traditional banks?

Your mind is probably buzzing with questions like why would one open an account with a Neo Bank if they aren’t even RBI-recognized? Why choose it over the trusted, traditional bank?

Well, Neo Banks not only offer your basic banking services but also some unique products. Right from investment services to money management tools that help you save and invest towards your financial goals. Browsing through their websites, you will notice service highlights such as – zero balance accounts, interest-free credit, zero forex mark-up on forex transactions, among others. My personal favourite is the convenience of opening a savings account from the comfort of home – hundred percent digital and zero percent painful. What a time to be alive!

Freo, Fi, Jupiter, Niyo, and RazorpayX are some of the top Neo Banks in India that provide such modern banking solutions. The main mission of these institutions is to offer freedom from non-digital financial services. With the help of powerful technology like artificial intelligence (AI) and machine learning (ML), they cater to customers in a quicker and more cost-efficient way. The terms and conditions of every product they provide are as transparent as possible with little to no hidden charges. Lower fees and higher interest rates are the biggest advantages of these banks. And they can offer this due to the minimal real-estate investment involved.

Role of AI and ML in Neo-banking

Neo banks have a horde of AI-powered analytics and insights. All this helps in providing us with various information such as the save-spend data, recommendations on the best money-saving practices, reminders to cancel trial subscriptions, bill payments, refund-tracking, and chatbots that manage customer queries. With a focus on customer experience, AI and ML are transforming the way banking is done.

Drawbacks of Neo Banks

Let’s take off the rose-coloured spectacles for a bit. Where the absence of a physical establishment poses as a benefit for both customers as well as banks, it also makes their relationship impersonal. A chatbot isn’t the greatest way to make up for this lack of human touch.

Another drawback, mainly for those opening current accounts with neo banks, is that the process isn’t entirely paperless. There is still a lot of documentation work involved for such accounts.

But while a cent percent virtual bank for savings account holders might surely seem stress-free, it also makes banks susceptible to cyber attacks, security breaches and similar online threats.

All these make neo banks a double-edged player in the field.

Should you give Neo Banks a chance?

More than 50% of India’s population is below the age of 28. And we are a generation that relies on resources being just a mobile app away, be it a 10-minute grocery delivery or a 10-second UPI payment. So, it is not surprising for us to gravitate towards mobile-first banking. With proper guidelines and healthy funding, Neo Banks will account for 9% of India’s total fintech market size by 2030 which is estimated to reach $2.1 trillion by then.

While the not so tech-savvy among us might find it difficult to trust these institutions easily, it is safe to open an account and deposit money in neo banks. Despite not being directly regulated by the RBI, the money in the customer’s account is secure as it is parked with the partner traditional bank that is under strict banking regulations of RBI. The low service charges make these banks affordable. It is also easier to open an account because of lesser regulatory restrictions.

At the end of the day, it all boils down to your preferences. Neo banks are not banks (yet) and they are still in their nascent stage. But if you want something more catered to your lifestyle or your age group, you can give these a chance. Start small when trying their services. With the world becoming more enmeshed with technology, I envision a day when these banks outshine traditional banks and become the future of banking. As Bill Gates said almost two decades ago, “Banking is necessary, banks are not.”

About Author Amisha

Related Posts:

Share this article