Page 49 - Banking Finance May 2021

ARTICLE

benefits of their clients. These banks emerge as nimble, agile perspective, monetary transactions are managed by their
and responsive to provide ever-changing needs of clients, partner banks.
consumers and regulators. It also takes initiative in sharing
data for analysis of budgeting, spending habits and saving Road ahead for Neo banks: Attributes and offerings like
progress towards long term financial goals. This type of accessibility, cost-effective multiple banking and financial
advanced support for a client's financial health encourages functionalities under one umbrella and personalization are
customers to deepen emotional bonds with their financial some of the driving factors for neo banks globally. Fintech
service provider. Through this type of services, consumers companies are building niche solutions focusing on blue-
are willing to pay a premium to quickly acquire new collar workers and unbanked persons. MSMEs, which is the
relationships and generate additional revenue. Neo banks way forward for the economy. Neo banks will be an integral
fulfill evolving needs of customers part of the progressive payment channels and financial
solutions in digital India.
Regulatory considerations for Neo
With the focus on digital payments and digital way of doing
banks: business, neo banking will be the fastest collaborator with
In India, virtual banking licenses are still not granted though the fairly evolved banking system we have currently,
there are foreign national banks offering digital-only especially to cater the needs of SMEs as well as consumers
products through their Indian subsidiaries. RBI remains across segments.
stringent in physical presence of banks and recently
reinforced the requirement for digital banking service With competition mounting among traditional banks, new
providers to have some physical presence. age Fintech, technology firms and non-banking entrants, it
is yet to be seen whether the market is deep enough for
Presently neo banks in India are addressing the regulatory neo banks to grow sustainably and equitably.
predicament by outsourcing their banking responsibilities to
those with licenses, creating strategic partnerships with Conclusion
traditional banks and providing services on behalf of existing The above facts on demand and services clearly envisage
ones. This model is already being used worldwide for that Neo banks are the future of banking. Neo banks have
example Chime and Mongo a leading Neo bank in the US been slowly eroding the relationship of the customer from
and Europe respectively. As a part of their business strategy traditional banks. Neo banks are purely challenges for
and to overcome regulatory hindrances, neo banks partner traditional banks. Neo banks open the doors to a new sector
with traditional banks. Neo banks are offering business and of business. Customers can carve a niche for themselves in
consumer banking services but from a regulatory a relatively short span of time. Neo banks give opportunities
for collaboration, traditional banks can leverage their scale
to bring a digitized suite of offerings to consumers.

On the other hand, Neo banks can bypass licensing
restrictions to innovate further. Neo banks help banks and
NBFCs streamline and optimize their performance. Beyond
traditional banking like offering deposit account, debit card
and payments, in India Neo banks can help in MSME sector,
account opening, providing financial services like insurance,
banking, mutual funds to unbanked or underbanked people
at affordable cost. So we can say that Neo bank able to
provide the right / customized product to the right people.

Source:
Various magazine and data available online

BANKING FINANCE | MAY | 2021 | 49