Bank Blogs: Are Neo banks reinventing the banking Models?

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A blog for Banks:

Are Neo banks reinventing the banking Models?

Tired of dealing with monolithic brick-and-mortars traditional banks, malfunctioning ATMs, and mountains of paperwork to process your payment transactions? By virtue of making banking convenient, simple, and even meaningful, neo bankhave come into the picture. Since its first appearance a few years ago in the UK, neo banking has become a buzzword.  

Neo banks, a tech-driven and innovative banking style bridge the gap between customers’ evolving expectations and traditional banks’ services in the digital era. Even though neo banks don’t have the customer base or funds to replace traditional banks, they have something under their hood, and that’s what we call- innovation. We never know; when this new face of fintech will eclipse traditional banks.  

However, many get confused by neo banks with digital banks. The only similarity they share is the banking services through smartphones and other social gadgets. And that’s where the similarities end. After all, Neo banking features many advantages and developing partnerships with fintech to serve their customer base much more conveniently and quickly than traditional banks.  

Many venture capitals and even private equity investors keep a keen eye on the market opportunities for such banks to invest. According to the reports, Monzo and Revolut are two successful neo banks that have just turned into digital banks in Europe by dint of early fintech adoption and a favorable regulatory environment. As of early 2021, these two banks have earned more than 21 million users and are now expecting to grow beside Europe. 

A blog for Banks:

Are Neo banks reinventing the banking Models?

Neo banks, a tech-driven and innovative banking style bridge the gap between customers’ evolving expectations and traditional banks’ services in the digital era. Even though neo banks don’t have the customer base or funds to replace traditional banks, they have something under their hood, and that’s what we call- innovation. We never know; when this new face of fintech will eclipse traditional banks.  

However, many get confused by neo banks with digital banks. The only similarity they share is the banking services through smartphones and other social gadgets. And that’s where the similarities end. After all, Neo banking features many advantages and developing partnerships with fintech to serve their customer base much more conveniently and quickly than traditional banks.  

Many venture capitals and even private equity investors keep a keen eye on the market opportunities for such banks to invest. According to the reports, Monzo and Revolut are two successful neo banks that have just turned into digital banks in Europe by dint of early fintech adoption and a favorable regulatory environment. As of early 2021, these two banks have earned more than 21 million users and are now expecting to grow beside Europe. 

Why the Neo banks are Booming

The year 2022 has arrived, bringing a lot of surprises and excitement to the fintech community. Whether it's about digital transformation, SWIFT connectivity rules, or neo banking, every region has seen a shift.  

Especially in Latin America, banks like C6, Neon, and Nubank are riding on the fintech boom to tap into a more extensive customer base and increase the profit margin. Fintech entrepreneurs in Latam are not only to relish the massive growth of neo banking. In fact, in many emerging markets across Africa, the Middle East, and Asia, many traditional payment infrastructures have been overthrown by financial institutions to provide tailored banking solutions for the masses.  

Neo banks are booming

Tech unicorns of the pandemic

Besides, the COVID-19 pandemic has accelerated the fintech trend in every region, leading to the emergence of global tech unicorns primarily operating in eCommerce, fintech, or cloud, with the last boasting the highest sum of aggregate valuation at over $529bn as of August 2021 following GlobalData's analysis 

While cash remains the preferred choice of payment in Latin America, businesses shutting down accepting the regulatory norms, many people have started using digital and online payments. That's where Neo banking has taken the plunge to fuel the adoption of digital payments and provided people with financial services and products that were previously unavailable or came with high costs and tight terms. 

 

Neo Bank Features

The internet-only financial services, neo banks lack physical branches. They are, however, customer-centric, convenient, and modern alternatives to traditional financial institutions that demand heavy legacy systems. With all the services from opening a bank account, processing payment, and even smart reporting, neo banks are challenging the status quo of conventional banking.

These tech-savvy institutions offer customers to process requests and set up accounts quickly without any hassle. It eliminates the hassle of waiting in long lines for getting cheques or paying bills on debit or credit cards. Owing to their popularity in Australia and the UK, where the banking penetration is quite high, neo banks provide chief services to the unbanked population in Latin America. After all, paying wages, bills, or other expenses has given more control over spending and saving and allowed customers to access the global market while sitting on the couch.

Neo banks don't charge heavy fees for maintaining the account. And the low costs criteria have attracted millennials who are not interested in a traditional bank's stuffy, slow services.

Neobanks is all about providing an excellent customer experience, which means customers don't have to face glitchy net banking sites anymore. Neo bank applications have user-friendly, clean and crisp. Moreover, they are highly responsive and well-designed to suit customers' needs.

The applications also detail the transactions and provide you with an up-to-date balance on your account at all times, so you don't have to go anywhere else for this information. 

Types and examples of neo banks

There are three types of neo banks that you should be aware of. Although they may seem similar in managing transactions and providing customized benefits, crucial services like licensing can create differences.

The first and foremost neo banks are those banks that work with their own banking license. This helps them provide their own checking accounts, money transfer facilities, retail payments, prepaid, debit, credit cards, savings, and even loans.

 

Examples: Atom Bank, Revolut, bnc10, Startling Bank, N26, Monzo. 

The second type of neo banks are those banks that offer financial services but with licenses obtained from other banks. In this scenario, customers generally have an account at another bank linked to the neo bank to provide its own unique interface and tools for the bank account operations. The tools can be used for budget management, transaction analysis, and automated notifications to help users achieve financial goals. Sometimes, neobanks also use the partner’s bank (parent company) license to offer their financial products.

 

Examples: Yolt, Simple, Chime Bank. 

The financial subsidiaries of large and consolidated banks fall under beta banks. And these banks work in the pursuit of reaching more customers or developing new products/services under different brand names. Thereby, under the license of the parent bank, Beta banks can offer their offerings and also expand to other countries through the licenses of the partner banks. Services can be limited initially and expanded as they gain popularity. 

 

Example: B next, Mettle, Sberbank Direct. 

Is Neo banks the Future of Banking?

There is no denying that neo banks offer completely digital services that put them far ahead of traditional banks. Their unique features and easy-to-use interface make them more appealing to SMEs and the younger generation. Their technical systems' modernity and simplicity, as well as their low or no-cost accounts, more excellent savings rates, and tailored financial solutions, may position them as industry leaders in the coming years. 

How ECS Fin Works with Neo Banks?

ECS Fin adds wings to the neo banking application with unique functionalities and features of IMS Payments. With stress-free signups, transparent pricing, smart routing, and the ability to easily access money when needed, IMS Payments addresses end-to-end payment processing.  

The modern Enterprise Payment Hub will enable neo banks to grow their business at scale, diversify their product offerings with ease and benefit from evergreen software updates. Further down the line, integrating our system will give the bank access to a collaborative platform for open innovation. Start living in a different world where customer values matter, not the value in your bank account.