<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner-1251.webp" alt="M2P Fintech" title="" id="pwxzxj8z1" width="100%" height="661">A few years ago, banking was always considered an arduous task with its complexity. But now, when we think of banking, ‘digital transaction’ springs up to our minds immediately, which makes our job simpler. Thanks to Neo banks, it redefines banking in the most user-friendly way and makes it more popular in recent years. Ergo, many customers now prefer using fingers for banking rather than their feet to visit the brick-and-mortar banks.Why such hype for Neo banks?What makes it stand out in the banking sector?We have unraveled everything you need to know about Neo banks in this blog. So, let’s get started right away.<h2 class="heading-node" id="299c" style="text-align: justify">What is a Neo Bank?</h2>Neo Bank is a type of digital bank that works entirely online without a physical branch. It is a customer-focused banking sector that attracts present-day tech-savvy users. They are also recognized as fintech that is demystifying the financial ecosystem actively. With Neo banks’ advanced features, the users can manage money wisely by using only their mobile phones. Moreover, compared to traditional banks, neo banks offer cheaper and faster banking services that include money transfers, lending, mobile-first financial solutions, and many more.<h2 class="heading-node" id="8b98" style="text-align: justify">Three working modes of Neo Banks</h2>Though Neo banks appear to be an app that controls financial services, the working is differentiated into three modes.<h3 class="heading-node" id="c677" style="text-align: justify">(i) Partners with Traditional banks</h3>It is a&nbsp;front-end focused&nbsp;neo bank which does not carry a banking license on its own and partners with a traditional bank to offer a wide range of core banking services. These types of neo banks include non-licensed fintech companies affiliated with existing licensed banks that offer seamless services and products for the bank’s customers. This collaboration ensures banks as their partner and not their opponent.<h3 class="heading-node" id="b6a7" style="text-align: justify">(ii) Bank’s Digital Avatar</h3>Here, the traditional banks develop their own digital-only initiative like neo banks to offer their services more digitally to their customers. They also go on par with the technology advancements to launch neo banking services. The banks that offer digital services through online portal comes under this category of neo banks.<h3 class="heading-node" id="c67b" style="text-align: justify">(iii) Neo Banks with a digital banking license</h3>They are called a&nbsp;Full-Stack&nbsp;neo bank that works only in countries that approve stand-alone digital entities and acquire a license from the Central Bank or the corresponding authority.<h2 class="heading-node" id="8e50" style="text-align: justify">Neo Banks Vs. Digital Banks Vs. Traditional Banks</h2>Banking is now a field where people are offered a lot of options to choose from. There are different kinds of banks that offer different services and qualities. The below image brings out the characteristics between three popular banks — <a class="link" href="https://m2pfintech.com/blog/neo-banking-the-rise-of-new-age-banking/">Neo Banks</a>, Digital Banks, and Traditional Banks.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/int.webp" alt="M2P Fintech" title="" id="69y0499an" width="100%" height="529">As the name says, traditional banks are the oldest of all with the most trustworthy customer relationship. They also specialize in a wide range of services and products but with tons of paperwork and, at times, online data, which demands extremely long wait times. But nowadays, traditional banks have also adopted digital tools like e-mail, SMS, application, website, etc.The next entrant is the digital banks, which are similar to Neo banks since they also offer banking services online. To simply put, they are traditional banking with a digital touch that allows users to manage finance 24/7 via an electronic/online platform. Digital banks eliminate customers’ visits to physical bank branches and automate traditional banking services with no paperwork. They uplift traditional services with a simple equation —&nbsp;Online Banking + Mobile Banking = Digital Banking.As you can see, Neo bank is an upgraded version that suits the present-day banking needs digitally and is user-friendly. Neo banks stand out with their simplified customer-centric banking approach with wise financial management. Users are satisfied with their 100% quick and easy digitized services with anywhere anytime accessibility, making them the most profitable business model.<h2 class="heading-node" id="9b30" style="text-align: justify">What makes Neo banks a lucrative fintech offering?</h2>Neo banks are one of the profitable business models that emerged in the recent few years. With their ingenious services, these financial institutions are hitting the jackpot in ways that benefit themselves and their users. The below-listed features substantiate neo banks’ success:<ul class="list-node" id="kzvx0pa02"><li>Fewer fees and faster banking services make it more popular and cost-effective even among underbanked sectors.</li><li>Neo bank is a customer-centric banking avatar as they automate services according to their users’ preferences.</li><li>They blend emerging technologies like Artificial Intelligence and Machine Learning to end the tedious banking process.</li><li>Customers enjoy various financial services like account creation, international transactions, or any services, quicker at any time and any place.</li><li>AI and data insights-driven app that tracks every transaction and generates reports as per user’s requirements.</li><li>Smart saving and Investment options are now possible with just a smartphone.</li><li>Neo banks act as a digital crust, making the core banking services crisper and accessible for their users.</li><li>They fill the digital gap and enable traditional banking services to Gen Z.</li><li>Collecting and analyzing data to give their users highly personalized and customized services.</li></ul>As a result, banking turned smarter with neo banks and easily reached out to unbanked and underbanked sectors. It also impacts banking today and tomorrow with its unmatchable digitized financial services.<h2 class="heading-node" id="smmjd1o8d" style="text-align: justify">Neo bank and its rising popularity</h2>The Covid-19 pandemic was the main reason which triggered its popularity when people were concerned about physical cash for safety reasons. People were more exposed to digital banking, which made brick and mortar banks have a healthy collaboration with neo banks. Their out-of-the-box strategies gave sudden popularity for neo banks.Starting from targeting the Gen-Z audience with product marketing, neo banks focus on the end-user experience by tailoring their User Interface to give the best possible user experience. Also, the customer gets to enjoy a better interest rate minus the need for lengthy paperwork.Furthermore, neo-banks have the ability to offer services based on popular customer opinion, and they further improve the stickiness by tailoring the services individually. When customers feel their opinions are being heard and fulfilled, they stick with the service provider. Neo banks now deploy this strategy to target specific audiences.These digital-only banks are ruling the banking space since 2017 with their innovative strategies and methods. We have&nbsp;Finin&nbsp;India’s first consumer-facing neo bank, fueled by our own <a class="link" href="https://m2pfintech.com/">M2P’s</a> API, which gives users a better track of their finances. Finin offers features like a detailed break-up of user spending and completely digital services with high bank-level security.Backed by banking licenses of the traditional banks, neo banks are adding increasing value by the day to the financial ecosystem; in fact, they can be termed as the new-age banks of today.<h2 class="heading-node" id="1101" style="text-align: justify">Turning stumbling blocks into stepping stones</h2>Even though it is one of the profitable business models in the industry, challenges are to everyone. Neo banks have limited banking services and products, unlike traditional banks, since they are relatively new. Indeed, we could see this challenger bank with a wide range of products and services in few years.Traditional banks being a string participant for decades with unbeatable trust relationships with their customers, neo banks find it difficult to gain trust. But, with collaboration with traditional banks, they are definitely coming up with great strategies and services to establish as a trustable one among customers.Neo banks are withstanding in this ambitious field with many robust financial institutions around. Every entrant, including traditional banks, would have faced their stumbling blocks and crisis, which led to the products and services we enjoy now. So, neo banks being an active player is turning every stumbling block into a stepping stone in its way.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Neo Banking 101: All you need to know

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner1251-12.webp" alt="M2P Fintech" title="" width="100%" height="662"><a class="link" href="https://m2pfintech.com/blog/neo-banking-101-all-you-need-to-know/">Neo banks</a> deliver digital banking services on steroids. The digital empowerment and financial possibilities they offer the underbanked and unbanked population are phenomenal. Their ability to foster <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">financial inclusion</a> with digitized convenience, lower cost, and personalized customer experiences are a few of the primary reasons for the success of <a class="link" href="https://m2pfintech.com/blog/top-14-neo-banks-that-reinvent-banking-experience-in-india/">neo banks in India</a>.Competing heavily on customer-centricity and deep tech, neo banks bridge the experiential gap between traditional banking services and evolving customer expectations. Free from legacy infrastructure hurdles, complex value chains, and stringent regulatory requirements, neo banks deliver super-fast, mobile-first services by leveraging advanced, agile, and lean business models.In the next five years, the global neo bank market is slated to grow at 47.1% and hit $333.4 billion market size. In India too, neo banks are a thriving industry with a huge market potential of over 190 million unbanked/underbanked people who still need access to basic financial services.So, if you are looking to set foot in the <a class="link" href="https://m2pfintech.com/blog/neo-banking-the-rise-of-new-age-banking/">neo banking</a> industry, this is the opportune time for you.We are here to help you with step-by-step guidance.Now, this is not unqualified guidance. We have immense experience and expertise in enabling neo banking services for leading players like Zenpay, Niyo, and Finin.Let’s get started!<ul class="list-node" id="4te59z1wy"><li>Step 1:&nbsp;Define target audience &amp; value proposition</li><li>Step 2:&nbsp;Identify and analyze audience pain points</li><li>Step 3:&nbsp;Work on innovative, customer-centric strategies</li><li>Step 4:&nbsp;Build a strong core and backend infrastructure</li><li>Step 5:&nbsp;Focus on experience design</li><li>Step 6:&nbsp;Manage compliance and security</li><li>Step 7:&nbsp;Ease onboarding, engagement, and marketing</li></ul>Fasten your seat belts!<h2 class="heading-node" id="958f" style="text-align: justify">Step 1: Define target audience &amp; value proposition</h2><a class="link" href="https://m2pfintech.com/blog/top-14-neo-banks-that-reinvent-banking-experience-in-india/">Neo banks</a> challenge the status quo of banking and payments for niche audiences. Hence defining that target audience is imperative to set up a neo bank.For example, neo banks like FamPay&nbsp;cater to teenagers, and&nbsp;Zenpay&nbsp;caters to blue-collared workers. FamPay’s proposition comprises cards and bank accounts that teenagers can use under parental supervision. Whereas Zenpay offers payroll cards that provide blue-collared workers instant access to salary and incentives.So, you need a crystal-clear understanding of your audience demographic and pain points to develop a value proposition accordingly. This will help you come up with a definitive reason why your customers should choose you.<h2 class="heading-node" id="9b55" style="text-align: justify">Step 2: Identify and analyze audience pain points</h2>Once your target audience is clearly defined, identify and analyze your target audience’s needs and pain points. This knowledge will help you include features that resolve audience issues, build trust and attract the right customer to your service. For example, Zenpay came at a time when the blue-collared workers were underbanked and were not able to access salaries and track their spending. The lack of access to salary accounts and other financial exclusion was the pain point for Zenpay’s audience. And their value proposition and services sought to resolve the challenge.Looking at your target audience’s pain points and working to close the gaps is a key step while setting up a neo bank. This knowledge will help you differentiate and stand apart from other players in the industry.<h2 class="heading-node" id="9050" style="text-align: justify">Step 3: Work on innovative, customer-centric strategies</h2>Neo banks stand apart because of their agile, innovative, customer-centric business strategy. Leverage technology to make your business model and strategy as convenient and user-centric as possible. Pack in unique features that will get your customers coming back to you.When it comes to features, some are must-have, and others are nice-to-have types. Must-have features are a necessity, without which the product or service will surely fail. Nice-to-have features are those that will add greater value and aid greater customer acquisition and retention.Here are some examples for more clarity.<h2 class="heading-node" id="7961" style="text-align: justify">Must-have features</h2><ul class="list-node" id="rcccmzkkk"><li>Low-cost structure</li><li>Easy money flow across borders</li><li>Quick account creation</li><li>User-friendly Interface</li><li>Real-time banking solution</li><li>High yield savings</li><li>Personalized card issuance (Physical/Virtual)</li></ul><h2 class="heading-node" id="b571" style="text-align: justify">Nice-to-have features</h2><ul class="list-node" id="zqdexn79o"><li>Zero joining fee</li><li>Zero annual Fee</li><li>Zero hidden Charges</li><li>Zero documentation</li><li>No-cost EMI</li><li>Personalized banking services</li><li>Educational loans/investments</li><li>Seamless budgeting</li><li>Tangible rewards</li></ul>With advanced technologies such as Artificial Intelligence and Machine Learning ruling the neo banking industry, you can include new features, upgrades, and everything your target audience expects without any hassles.<h2 class="heading-node" id="b472" style="text-align: justify">Step 4: Build a strong core and back-end infrastructure</h2>A robust neo banking app demands the best suite of core and back-end applications. As it has to deftly manage multiple applications and transactions without lags, the core and back-end infrastructure must be powerful enough. To build a strong neo banking app, you need <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">APIs</a>, a card processing app, and back-office tools.<ul class="list-node" id="fg87tfapd"><li>API:&nbsp;To connect your neo bank app with other services like payment gateway or authentication segment.</li><li><a class="link" href="https://m2pfintech.com/blog/credit-card-processing-a-definitive-guide/">Card Processing App</a>:&nbsp;This&nbsp;app is responsible for all the transactions or anything related to cards.</li><li>Back-office Tools:&nbsp;Manages the neo bank in the whole perspective.</li></ul><img src="https://miro.medium.com/max/1400/1*hYBMUudyKsAoH36Za4l89Q.png" alt="Backend infrastructure framework to create Neobanks" title="" width="100%" height="529">The back-end infrastructure can be built in three different ways.<h3 class="heading-node" id="e1a9" style="text-align: justify">1. Developing from scratch</h3>You require a banking license and a huge investment of time, effort, and money, as you are developing infrastructure, design, implementation, tech stack, and also the future sketch by yourself.<h3 class="heading-node" id="822d" style="text-align: justify">2. Partnering with banks</h3>To minimize the time and effort, you can integrate with established banks and get your neo banking model started. It also does not require much work in terms of customer acquisition as you can leverage the bank’s trusted customers, to begin with.<h3 class="heading-node" id="94bc" style="text-align: justify">3. Partnering with <a class="link" href="https://blog.m2pfintech.com/wp-admin/post.php?post=2422&amp;action=edit">BaaS</a>/API Provider</h3>You can partner with fintech companies to provide <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">APIs</a> to develop the core and bank end infrastructure for your neo bank. This decision with catapult your go-to-market speed to the next level with lower investment in terms of time and effort.For example, fintech firms like&nbsp;<a class="link au mu" href="https://m2pfintech.com/" target="_blank" rel="noopener ugc nofollow">M2P</a> power neo banking apps by delivering tech stacks and best-in-class infrastructure to build customized products with seamless integration. We serve as an account aggregator of multiple banks and help neo banks leverage our partnerships and compliance to its best potential.When it comes to card transactions, we take care of webhook notifications, reconciliation settlement, and even customer reports. For some of our neo banking customers, we also created co-branded debit cards with banks. We help them design their own debit card with features like multiple controls (PIN), lock/unlock cards, security measures, setting preferences, virtual cards, and more.In India, neo banks do not work independently. Hence partnering with the right banks and API providers is critical to increase go-to-market speed and achieve growth and profitability.<h2 class="heading-node" id="fbc3" style="text-align: justify">Step 5: Focus on experience design</h2>Humanizing transactions and enabling personalized experiences is key for the success of a neo banking app. To that end, you need to prioritize experience design for visually appealing app design and easy-to-understand interfaces and clear call-to-action.Experience design enables frictionless navigation and improves customer experience by focusing on speed, convenience, security, and seamlessness. Ensure your neo banking apps are aesthetically designed for a smooth customer journey and satisfaction.<h3 class="heading-node" id="a249" style="text-align: justify">Step 6: Manage compliance and security</h3>Better the security, better the trust!Regulatory compliance and security infrastructure design play a significant role in neo banks, as customer data and money are at stake here. Managing <a class="link" href="https://m2pfintech.com/blog/pci-dss-the-payments-armour/">PCI DSS compliance</a>, <a class="link" href="https://m2pfintech.com/blog/how-does-payment-tokenization-work/">tokenization</a>, the generation and issuance of payment tokens, and the operation and maintenance of a token vault is a laborious yet critical process.Hence, start with setting up the Security Office Center (SOC), which will function as a command center for your neo bank app. This helps you in analyzing every crumb of information in your infrastructure. You can even implement Security Information and Event Management (SIEM) software solution to secure and analyze every activity in your neo bank.You can even go the extra mile by building your own security tools and solution to protect customer data. It is highly advisable to maintain access logs or anything happening in your neo bank platform to have a record for your security team to look into any time in the future.Before stepping onto the deployment stage of your neo bank, run a series of checks and automated tests to identify and get rid of the issues. Think of every possibility your user may utilize your app for. Here’s a series of tests you can opt for:<ul class="list-node" id="yk7tuv0ut"><li>Unit-testing</li><li>Integration testing</li><li>Security testing</li><li>User acceptance testing</li><li>Regression testing</li></ul>Ensure your team runs the tests even after the app goes live because this lowers the chance of your app facing security issues later. Automating the tests by implementing a custom infrastructure helps in this case.Fuse security onto DevOps — <a class="link" href="https://m2pfintech.com/blog/devsecops-the-future-of-financial-software-development/">DevSecOps</a> to develop your neo bank application. At the time of upgrades and new releases, you can go to market quickly and seamlessly.<h2 class="heading-node" id="ecd2" style="text-align: justify">Step 7: Ease onboarding, engagement, and marketing</h2>Don’t just sit back after launching your neo bank. Your journey has only begun.Ensure onboarding is simple, smooth, and effortless for customers. Focus on marketing efforts to acquire and retain customers. Ensure you engage your customer throughout their journey with your neo bank.Remember, the profitability of your neo bank can be determined by the customer Life-Time Value (LTV)/ Customer Acquisition Cost (CAC) ratio. The higher the LTV/CAC ratio, the greater will be the income generated per new customer. So, the key is to keep your customers happy.All set to start your own Neo bank? Got more questions in your mind?Ping us at&nbsp;business@m2pfintech.com.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

7 steps to start a Neo bank from scratch

&nbsp;<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner.webp" alt="M2P Fintech" title="" width="100%" height="529">Decades back, our banking systems were massive local servers poised at a physical location of a bank. The conversation between branches happened only at a specific time. Any transactions that occurred after were reserved for another day.The local servers handled the heavy load of deposits, account openings, loans, and credit processing in its designated area. So, going to the bank to avail these services required planning downright to its every tiny detail.Fast-forward a few decades, banking has taken a its digital avatar where traditional banks and new-age neo banks compete for customer attention and retention. Traditional banks are now making the hard choice of restructuring the legacy systems. But, they face the unique challenge of data management and processing.Just to render swift and intelligent services, they need to leverage analytics, break down data silos and restructure data according to the needs of the business. The vast amount of data generated brings the points of scalability and flexibility into focus. It has driven banks towards a service-based delivery model.The primary challenge that banks face is in consolidating data and offering contextual banking. The legacy systems are often limited by performance and horizontal scalability. They also have a minimal understanding of polymorphic data handling capabilities.This is where APIs come to the rescue; as banking is a global transaction exercise, they seamlessly integrate as a plug-n-play platform. With <a class="link" href="https://m2pfintech.com/blog/neo-banking-101-all-you-need-to-know/">neo-banking</a> and <a class="link" href="https://m2pfintech.com/blog/open-banking-a-primer-2/">open banking</a> on the rise, <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">banking APIs</a> offer the following benefits:<ul class="list-node" id="78x0lme2c"><li>Multiple platform data aggregation and gain a higher share of target customers</li><li>Enhanced operational efficiencies with automated processes</li><li>Niche digital user experience</li><li>Potential to scale complex operations with minimal effort</li></ul>Many banks have integrated APIs as microservices and adapt cloud-based processes whilst reducing their dependency on the core banking system. Furthermore, APIs have helped improve a bank’s or any financial institution’s native service and offerings.To sum up, APIs have enhanced banking services and have helped craft a user-driven experience that focuses on experiential generation.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Transactional to experiential banking- The Paradigm Shift

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/05/Artboard-1-copy-7-1-3.webp" alt="M2P Fintech" title="" id="1rpwrq7ge" width="100%" height="447">Like every other English, the term over-banked has its share of meanings:<ul class="list-node" id="23k37tfcl"><li>It denotes a place with an excessive number of banks.</li><li>It also indicates people with too many bank accounts.</li></ul>But the true meaning of the word is that your watch is malfunctioning, and you need to get it repaired.Coming back to the people’s perspective of the overbanked, they are the ones who are financially literate with efficient money management skills. They get the most out of their bank accounts as banks operate on a minimum balance model with numerous benefits for every account category.In countries like the USA, the overbanked often rely on sites like Mint.com, Personal Capital, or LearnVest to manage all their accounts in one platform. They can oversee and make decisions while having a 360° view of their financial activities.In fact, one of our customers, Finin, a Bengaluru-based startup and India’s first-ever neo-banking platform, offers the functionality of viewing different bank accounts aboard their platform. They offer account aggregation, bill and subscription management, smart budgeting, and goal-based saving.With all bank accounts in one place, the app would understand the bill, subscription, and EMI cycle of the consumer and tell you what your future expenses will be. The initiative is to build a savings first consumer-focused <a class="link" href="https://m2pfintech.com/blog/neo-banking-101-all-you-need-to-know/">neo bank</a> that will collate the many concepts related to wealth management into today’s Fintech scenario.Such apps would take what is known as a&nbsp;“Nudge approach,”&nbsp;where it will alert you about your spending behavior. With Artificial Intelligence and Machine Language, an individual’s saving and spending behavior is also understood, thereby providing a hyper-personalized service.The Overbanked tend to make decisions based on how much they gain; thus, the “relationship” with an institution is usually dismissed. This is where FinTech's use hyper-personalization as a hook to reel in today’s millennials. They aim to create an incredible user experience for the overbanked with financial literacy and freedom at its core.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Why do the overbanked need Fintech?

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner-1251-2.webp" alt="M2P Fintech" title="" id="g4x9lr2sv" width="100%" height="479">Bridging the shortcomings of traditional banking through integrated value chains and regulatory requirements, <a class="link" href="https://m2pfintech.com/blog/neo-banking-101-all-you-need-to-know/">neobanks</a> today offers a holistic twist to banking services. User-friendly and completely digital, these banks work on referral-based acquisition and competitive pricing.With no banking license of their own, neobanks partners with traditional banks to offer their service suite. While this might be a pain point, neobanks target niche micro-segments like the Gen-Z because of their higher transaction volumes. Coupled with Data Analytics, neobanks bring forth innovative solutions to help individuals keep better track of their finances.For instance, our client Finin, India’s first neo bank, has brought on a feature where users can have a unified view of their bank accounts via their platform. It helps a user to keep better track and plan their financial journey.<h2 class="heading-node" id="27ed">Unbundled Banking</h2>Neobanks today are focusing on offering one type of product/service with complete functionalities. They operate with customized tech stack modules aimed at niche segments with user convenience as the focal point. Some of the top global neobanks are Revolut, Monzo, WeBank, Chime, etc.Paradoxically, legacy banking institutions cannot create these experiences as they face redundant processes, <a class="link" href="https://m2pfintech.com/blog/why-payments-interoperability-is-a-must-for-todays-generation/">interoperability</a>, etc. Fintech professionals realized that an obsolete technology stack was limiting the interoperability of traditional banking. This, in turn, guided the notion of Unbundled Banking, with neobanks steering the helm.Unbundled banking further narrowed that focus on customer experience, user convenience, and simplified processes. In this approach, anyone can launch banking products minus the need to go through a rigorous process of setting up a bank.<h2 class="heading-node" id="d0fd">Neobanking Revenue Model</h2>Neobanks operate on a strong cost-efficient model backed by less complex IT systems. So, their revenue model depends on the kind of products and services offered by them. Cross-selling of products/services to niche customer segments also acts as a secondary revenue stream for neobanks.They are driven by data-based decisions that depend on a decision-making model. Neobanks gather consumer data and analyze them and predict consumer behavior. These predictions help to offer customized services to their target customers. By deploying AI-driven chatbots, video chats, and data analytics, neobanks are available to customers as a cost-effective banking service right at their fingertips.Neobanks cross-sell and generate secondary revenue streams with a range of customized offerings suitable to customer’s needs. They also offer payments and accounts back-end platforms for other fintech companies to build their own interface on top of it.<img src="https://miro.medium.com/max/1400/1*ccQft1zHg2RQupLqXoK1YA.png" alt="Neobanks’s revenue model" title="" width="100%" height="306">Plug and Play solutions with 3rd party service providers with ease and data insights. With this, they can offer a range of products and services based on customer appetite and financial goals to boost up the secondary revenue lines and opportunities for cross-selling.&nbsp;Boosting lending options to customers and the SME sector will help generate revenue options.<h2 class="heading-node" id="6d68">Neobanks &amp; the less-digitally savvy users</h2>The audience that comprises this segment is often elderly and rural customers; capturing their trust is quite an uphill task for neobanks. They gain such customers with a free account and low fees and budgeting tools and cash projections based on past spending, and ‘savings pots’ for spend categorization. Offerings like High-Yield Savings Accounts and easy money movement through lower fees &amp; charges are some ways.Neobank growth can be accelerated through adaptable services and convenience in money transfer like cheaper lending rates and better rural audiences’ products. Creditors can choose borrowers and information from diverse sources and technology-based lending.&nbsp;Like how social media platforms have pulled in rural customers, neobanks also need to create awareness through their user-friendly applications.Reduced data rates &amp; smartphone prices will also encourage rural customers to use neobanking apps and gain trust.<h3 class="heading-node" id="e927">Neobanks &amp; Transparency</h3>The issue of banking transparency is closely linked to <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">financial inclusion</a>. Neobanking transparency can be improved through dashboards, reports across products with enhanced interfaces, and easy-to-understand services such as payments, payables and receivables, and bank statements. They must explain real-time notifications, any charges, and penalties incurred by the customer too. They should send instant alerts to customers to know exactly what is going on with their account.<h3 class="heading-node" id="2fb2">Security &amp; Privacy</h3>Neobanks were the primary users of security-enhancing models. These were MCC block, single-use <a class="link" href="https://m2pfintech.com/blog/all-you-need-to-know-about-virtual-cards/">virtual cards</a>, and tokenized online transactions. They rely on security and safety when designing platforms, like data localization or 2-factor authentications (2FA) for card-based transactions.Neobanking enables third-party financial service providers (TPPs) to access customer data from banks or financial institutions. They must maintain robust online anti-fraud systems and inform customers of breaches as soon as it happens.Customer permission is required to ensure data privacy or share certain information with banks or providers. For instance, if the customer gave consent, they can share financial data like spending habits and regular payments with other banks.Providers must comply with <a class="link" href="https://m2pfintech.com/blog/gdpr-in-a-nutshell/">GDPR regulation</a> and data protection rules. They must provide transparency on how and for what the data will be used, for how long before they get a customer to sign up.<h3 class="heading-node" id="04ca">Trust</h3>Neobanks have strong drivers for securing their customers’ accounts, which are reputation management &amp; consumer perception. Developing trust can also be a challenging factor for loyal traditional banking customers.&nbsp;Fines, data breaches, and attacks can significantly damage consumer trust in non-traditional banks. Therefore, neobanks must protect consumers from mobile Trojans phishing scams and account takeover attempts. They can earn consumer trust through advanced authentication concepts such as dynamic linking, device binding for mobile apps, mobile application shielding, and transaction risk analyses.Strong privacy and data protection policies like removal of hidden fees and charges can help build consumer confidence in neobanks.<img src="https://miro.medium.com/max/1400/1*0VH_WhJDpgy4AEpgB9ivEA.png" alt="Advantages of Neobanks" title="" width="100%" height="306">Neobanks are trying to simplify the ways of transacting through digital mediums through:1. Simplified process with minimum steps to complete with minimum redirect for the transaction/payment 2. Tightly tying up and different players in the ecosystem (Retailers, Digital Service Providers, Issuer and Acquirer banks, etc.) 3. Standardization across devices and internet browsers 4. Compatibility across platform and technologies 5. Educating conventional customers on digital payment and ensuring that money is safe.<h2 class="heading-node" id="1e23">Neobanks Vs. Traditional Banks</h2>Traditional banks are focused on product-centric models, meaning high verticalization of products, no strong communities built around the brand/product, increased customer acquisition cost, and legacy technology infrastructure.But currently, traditional banks have been increasingly offering unique products and services to customers. One might wonder how neobanks will continue to differentiate themselves from conventional banking as a result.Neobanks can tackle product competition by keeping the focus on a platform-centric model. For example, high community engagement with the product, product horizontalization with best-in-class apps, open-banking APIs, and capitalize on a mobile-only approach for the low customer acquisition cost. A lower dependency on 3rd party providers and real-time data integration and management might help too. Above all, customer-centric organizational design and customer needs to drive data architecture.Neobanks create an ecosystem of services around their infrastructure, shifting the banking value from branches to their <a class="link" href="https://m2pfintech.com/blog/the-world-of-apis-how-they-power-fintech/">API</a> layer.&nbsp;They expand their user base by providing services on a 3rd party platform or offering 3rd party services on their platform.The neobanks’ value propositions &amp; CLV is based on lower costs, personalized insights, predictive intelligence, user-friendly interfaces, easy accessibility, and simplified processes.<h2 class="heading-node" id="17cf">The Global Way Forward</h2>On a global scale, neobanks are on an upward growth trajectory in Europe, followed by America. The real neobank growth is being unlocked in the APAC region, with many countries devising their virtual banking systems.Hong Kong, Taiwan, and Singapore have already implemented virtual banking licensing, with Thailand and Malaysia following suit.In India, neobanks are still nascent. Still, they are playing a leading role in helping small businesses to manage finances conveniently and comprehensively. The data below shows that the Indian neobanking market is growing fast:<ol class="list-node" id="701721vxm"><li>Average market maturity of India is 2–3+ years compared to 5–6 years+ in Europe and the US.</li><li>Number of neobanking players in India has gone up in the recent past compared to global markets.</li><li>Fund raised by Indian neobanks have gone up to $168 million</li><li>Indian neobanks are boosting up the competition through value-added services apart from standard offerings.</li><li>Indian Government supports the MSME sector through different schemes that open up Indian SME neobanks opportunities.</li></ol>Neobanks are expected to explore strategic partnerships with&nbsp;established traditional banks to grow in India. The Reserve Bank of India (RBI) has not permitted a digital license to neobanks yet. RBI has initiated the change by providing a license to small finance and payment banks, to begin with. Banking Industry experts are hopeful that RBI will also work on policies to approve banking license for digital-only or neobanks soon in the post-covid-19 era. This will keep the fate of neobanks blurry.<h2 class="heading-node" id="c577">Conclusion</h2>Fintech will continue to push neobanking as the new normal. The pandemic is just a catalyst to ignite the digital transformation. Neobanks are challenging mainstream traditional banks. They are backed up by digital backing licenses and control most of the value chain from front-end to back-end.Till then, neobanks in India will have no option but to continue partnering with the traditional banks to offer services.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Tag: "Neobanking (14)"

Product

About

Compliance

Resources