Page 44 - Banking Finance October 2025

ARTICLE
A R T IC L E
Major neo banks in India are Jupiter, Instantpay, Razorpay, Speed: Neobanks provide expedited account creation
Niyo, Uni Card, etc. and speedy processing through next-generation credit-
scoring methods for loan applications.
2. Key Drivers of Neo Banking Adoption Insights: They furnish contemporary dashboards that

and Growth relay intelligible, valuable insights regarding payments,
receivables, payables, and statements.
The emergence of neo banking relies on specific trends
related to technology, regulation and socio-economics: Cons
Open banking policies: Policies such as PSD2 in Europe Absence of a bank charter: Neobanks lack the status
allow third parties, with the customer's consent, to of licensed banks and often collaborate with a partner
access customer banking data, engendering innovation bank to offer FDIC coverage. You should verify your
and competition. account's coverage through the partner bank before
opening one.
Digital-Native Consumers: Younger people, especially
Millennials and Gen Z, like to have smooth digital ex- Little or no branch amenities: Neobanks typically do
periences, and are more inclined to try new financial not have brick-and-mortar locations, meaning that your
service providers than past generations. likelihood of face-to-face interaction is low.

COVID-19 Pandemic: The COVID-19 pandemic has has- Limited array of services: Compared to brick-and-mor-
tened the shift to digital-first financial interactions. tar (traditional) banks, neobanks often provide basic
checking and savings products and fewer loan options.
Brand Experience: Positive digital brand experiences
have a positive impact on customer trust and loyalty.
The elements that impact consumer satisfaction include 4. Challenges in the Neo Banking Ecosys-
application interface design, personalisation, respon- tem
siveness, and security perception. Regulatory Challenges
Financial Literacy and Demographics: Familiarity with Since most neo banks are yet to be granted a full bank-
fintech and understanding of fintech products, specifi- ing license, they are limited in their partnerships, lim-
cally neo banks, can encourage using neo banks in at- iting the autonomy of operations for the neo bank.
risk market segments. Emerging economies often have regulatory ambiguity,
creating a hurdle for growth.
Legitimacy and Trust: Consumers in developing neo
banking environments make trust assessments based Risk of Cybersecurity
on transparency, a strong cybersecurity profile, and Neo banks are highly vulnerable to cybersecurity risks
compliance with regulations to ensure their money is such as data breaches, phishing, and fraudulent digital
safely handled. payments. Any data breach may create a lack of trust,
which may be detrimental.
3. Pros & Cons Threats from Legacy Institutions
Pros The traditional banks are launching digital-only solu-
Reduced fees: Like online banking solutions, neobanks tions, such as the YONO by SBI, BOB world by Bank of
attempt to save by not having to pay for a physical Baroda, Kotak Mahindra Neo Bank, etc, in India, which
branch. Many neobanks will pass these savings onto removes the "newness" factor.
customers by way of lower fees. Profitability Concerns
Higher interest rates: Because they tend to have lower High customer churn rates and low margins for basic
costs, neobanks can offer better interest rates. accounts give only the option to constantly innovate
monetisation strategies.
Convenience: Regular banking practices like check de-
posit or peer-to-peer transfer can happen on a
neobank's mobile app or website, anywhere and any- 5. Neo Banking in India: Way Forward
time. The neo-banking sector in India is still developing and is

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