Fintech to Neobank: How to face traditional Banks with their competitive

HISTORY OF NEOBANKING: DEFINITION, OPERATION, TYPE, PROGRESS TO DATE

INTRODUCTION

The concept of neobanks is the newest thing in the world of banking. The term "challenger bank" is used in the UK to refer to a number of?fintech?banking startups that emerged in the wake of the 2007–2009 financial crisis. on ultra-fast 5G internet speeds and 15-minute food delivery attract all. Their services may be accessed by clients through their respective computers or mobile devices of the income of neobanks are mainly made up of transaction fees received when customers pay with their debit card. ?The range of services provided by neobanks is not as broad as that of their traditional counterparts. Unlike incumbent banks, a large portion. The term?neobank?has been in use since at least 2016?to describe fintech-based financial providers that were strong competitors of the Classic?Traditional banks. There were two main types of companies that provided services digitally: companies that applied for their own?banking license?and companies in a relationship with a traditional bank to provide those financial services. The former was called contestant banks and the latter was called neobanks.?

NEOBANK DEFINITION

?“Neo” means new. These are new-age banks without any physical location, present?entirely online. They provide digital, mobile-first financial solutions for payments, money transfers, lending, and more. They allow customers to make deposits and withdraw money. They offer debit cards, investment facilities, and more. They even provide credit and lending services.?However, most neobanks do not have a banking license and cannot operate stand-alone — most neobanks partner with licensed banks to provide financial services. Fintech is the future of finance, and neobanking is the future of fintech. A?neobank?(also known as an?online bank,?internet-only bank,?virtual bank,?or?digital bank) is a type of?direct bank?that operates exclusively online without traditional physical?branch networks.?Neobanks are digital-only banking platforms that operate solely online. Basically, they do not have a physical presence. For customers, transactions in traditional banks could require a lot of time and effort. Neobanks deliver a seamless online simpler, intuitive and enjoyable user experience by bringing an experiential, digital layer on top of traditional banking. With their tech-driven nature, customers can open accounts by themselves and use their offerings hassle-free.?As the Reserve Bank of India (RBI) does not permit fully-digital banking establishments yet, neobanks in the country use partnerships with physical banks to deliver some of their key services. One quick workaround neobanks can start recapturing the concept of joint bank accounts

Dee Hock, the Father of Fintech

Credit cards were introduced?onto the streets of Fresno, California, one mid-September day in 1958. They were the brainchild of?Joseph Williams?of Bank of America. Although cards in circulation like Williams’ cards were novel for bundling pre-approved credit with a payment facility. Many of the original features of Williams’ cards such as the one-month grace period and even the prevailing interest rate of ~18% per year are still in use today. “Payments…is the battlefield of finance for the next decade.” ?The man who got the flywheel spinning was Dee Hock.?In creating Visa, Hock had two big ideas, one around organizational structure and the other about the very nature of payments. The two ideas would coalesce to form the foundation of Visa.?For one thing, always surprising to me that Dee Hock isn’t more widely recognized as a business genius. Visa market cap per employee is substantially greater than the (conventionally defined) tech giants.

Banks vs Big Tech

Bankers are getting more visibly nervous about the relative power of big technology companies. This week, Ana Botin, executive chairman of Santander?wrote an op-ed?in the Financial Times.?The regulation now favors tech companies that intermediate financial services over banks. This is especially true for the rules on data, which powers payments.?Large tech companies are becoming lending platforms without having to comply with most banking regulations.?Their role, although still relatively small overall, is growing. Last year, fintech and Big Tech credit reached $795bn globally, according to the Bank for International Settlements. We need to level the playing field?— not to give banks an advantage, but to remove the advantage that tech companies have had for the last 10 years. Under EU regulations, financial firms must give tech companies access to customer-generated data if the customer agrees. This requirement should apply to data held by every sector, including tech companies. The playing field should not be tilted in favor of anyone. She raised concerns by the CEO of UniCredit in 2019: “We are asked to open up our data to everyone, which is fine, that's the rule, but if one of my clients wants me to have access to his data on Amazon or Google that is not possible… There is no reason why there should be an asymmetric treatment of banks.”

Types of banks A to Z: ?Advising, Banq, Bulge bracket, Central, Commercial, Community development, Cooperative, Credit union,?Custodian, Depository, Development, Direct, Export credit agency, Investment, Industrial, Merchant, Middle market,?Mutual savings, National, Neobank, Offshore, Participation, Payments, Postal savings, Private, Public, Retail, Savings, Savings and loan, Universal, Wholesale, and Bank holding company.

Notable global neobanks

According to Dealroom. co?the most notable neobanks in Europe are the below: Monzo, Chime, N26, Revolut, Starling Bank, OakNorth Bank, Zopa, Atom Bank, Qonto, Lunar, Wise, Adyen, Tide, Bunq, Viva Wallet, Curve, Juni, Monese, Tandem, etc. In spite of all the obstacles, many players like RazorpayX, Jupiter, CredAvenue, and Fi, are thriving in the neo-banking space.?

?PayQ DECLARED AS INDIA’S FIRST “NEO BANK”

Fintech giant?PayQ?spread its business operation straight by enhancing the user experience with its all-new “PayQNeo”, which is the next generation Global banking system and entering the market at the right times. “PayQ Neo” comes extremely handy and ingenious which operates from the HQ in the UK and as the financial landscape is shifting towards customer experience and satisfaction, traditional banks are unable to their customers. The recent financial frauds happening with end users, where back shift the entire accountability towards the bank customer in another big off-ramp for the end users. Last year was a record for venture funding in payments and new models like?Buy Now Pay Later?have picked up momentum. Anyone who did their Christmas shopping at JD Sports in the UK will have a first-hand account of how the battlefield looks.

Post -COVID where conventional customers are moving away from physical banks and physical cash and captioned more towards online banking and wallets, PayQ’s escalating “neo bank”, extends an array of digital-banking services to consumers and small businesses remarkably impress global entrepreneurs. PayQ commenced with online payments, then online lending and asset management platforms and now it’s the next generation of banking system called “Neo Bank”. PayQ’s Neobank is overwhelming the global entrepreneurs & investors. Globally, ‘neo-banks’ are essentially 100 percent digital banks with no Branches, they are considered to be a nimbler version of traditional banking, which entices to ZenX. ?Neobanks can be called Fintech firms that provide digital and mobile-first financial solutions payments and money transfers, money lending, and many. Even the payments sector crowded and lending positions against the facts of India’s complex credit markets, this money has shifted to India’s first Neo Bank.

PayQ Founder and CEO, Shibabrata Bhaumik (the “Fintech Chanakya”) say “The traditional banks recognized itself as product-oriented, but the “PayQ Neo” is a banking experience designed around human needs, the basic use of finance, the customer empowered to control total financial businesses in one place and redefine their relationship with money. To make banking simple, convenient, globally seamless, and accessible, PayQ launched its new banking platform for everyone across the globe. They try to deliver a platform with intelligent insights and savings tools that enable a user in savings, aid in e-commerce transactions seamlessly, payment rewards, investments, and personalized credit to consumer and managed autonomously by technology.” PayQ is offering a zero markup fee (usually, this fee is 2.9% of the amount) for customers using their debit cards abroad, to promote it as an alternative to the classic Forex card issued by most traditional banks. It also offers better control of the card through an app. A user could activate and deactivate the card, check the prevailing exchange rates, issue duplicate cards, set limits, and more. PayQ is also offering international savings accounts in partnership with International Banks and they will have Zero fees on ATM withdrawals, solutions around investing, and no transactional fee of $50,000/month. The founder reviews the advanced fraud filters in PayQ Neo, which are fully customizable so that the end user can set them up based on their usage, industry, product, current sales or promotions, work schedule, and e-commerce store abilities. The fraud filters can be layered on top of each other to create a robust yet precise assessment of all transactions that comes through PayQ Neo. He complains that in Asian Countries, banking is still very timeworn style. He suggests “imagine you could automatically stop fraudulent orders from processing in our store to stop a Scam or Fraud before it actually happens. Think about how much money the business owner or end user would save time. PayQ’s fraud filters may sound like a distant future, but they are a reality now with the all-new PayQNeo. PayQ has started its full-fledged operations, such as Yelo, and is conducting pilot testing. This includes Jupiter by Citrus Pay co-founder Jitendra Gupta and epiFi by former Google Pay executives Sujith Narayanan and Sumit Gwalani, who have raised funds and are expected to launch operations soon.

These are some of the unique salient features only “PayQNeo” offer

?“PayQNeo” is first seen as a traditional bank with better features, lower service charges, offer customizable solutions, and better money stressed that “COVID-19 had acted as a catalyst to grow rapidly the digital espousal of financial services and contactless payment due to pandemic. But changing the mindsets of consumers with ease of use, 24*7 service, anywhere its use has been growing progressively making long-term bright prospects for the future of PayQ as the digital wave-based services potential largely untapped. They are targeting specific customer segments with digital services more than their banks provide. ?Bhaumik is a young 1st generation Indian entrepreneur, who has developed application program interfaces (APIs) for India’s ambitious Unified Payments Interface (UPI) for processing digital payments and recently founded the peer-to-peer (P2P) space chain called hotelnstudio.com, which has identified unmet demands in traditional space systems and allowed people to offer private space to their peers. He also called accepted that “PayQNeo” uses AI and ML to analyze the spending of customers and offers them more control over their finances. It provides reports with insights into their spending and saving behavior. It also suggests data-driven investment plans. It will suggest a mix of investments and allocation each month. Shibabrata suggests that “PayQNeo” offers 1% cash back on every purchase from $1 to $500, complimentary airport lounge access, mobile protection plan, and a customized Premium Visa debit card. There are many apps such as PhonePe, Google Pay, and Paytm that offer solutions for payments and investments. They can by AI suggest the customer saving $100 in his account for some weeks, the money be kept in a liquid fund or a sweep-in fixed deposit that can earn better returns in a few clicks. In the case of other apps offering solutions, the customer needs to be proactive to do this.

Features of Neobanks

Neobanks are becoming a go-to choice for many customers as they offer multiple benefits to meet the evolving needs of new-age users. They focus on enhancing the banking user experience and serving their needs within no time. Smartphone usage and internet penetration are growing faster in India than in many other countries. Neobanks have taken advantage of this situation and provide services that are fired up by technology. This has attracted a lot of millennials, and tech-savvy populations. Here are features of neobanks that differentiate them from traditional banks:??Provide this service at home by a smartphone with Neobank apps like Online processing of opening Saving Banks provide both virtual card or physical cards and also Credit Cards, Personal or business loans.

Different Types of Neobanks

Front-end neobank

It does not have an operating banking license. It usually relies on the backing of traditional FIs and functions in partnership with them to provide services to its customers. Such a neobank often sponges on the traditional bank’s BS for operating.

Digital banking units

Standalone or independent digital banks are the digital arms of an established bank. SBI’s YONO is a popular example. It must obtain a virtual banking license to run a standalone digital bank. These banks can acquire their banking license once they have sufficient capital to ensure their investors’ deposits.?

Full-stack digital banks (licensed)

They have the required bank regulatory approvals and provide a broad selection of services. They issue deposits and loans and maintain their independent brand and BS. In an increasingly digital environment, these banks are not burdened by the costly networks of physical branches.?Full-stack digital banks are not yet legalized in India. However, changes have been proposed by authorities to level the playing field that has been dominated by physical banks for many decades.

Neobanks vs. Digital Banks vs. Traditional Banks: What’s the Difference?

The differences between neobanks and traditional banks are clear. However, it can be difficult to distinguish neobanks from digital banks considering they are so similar. Digital banks act as an extension or online-only arm of traditional banks. They don’t just back traditional banks but also offer adequate digital services to customers online.?Neobanks are completely digital, existing mostly independently of traditional banks. They have no physical branch locations, unlike traditional banks. They offer a range of personalized services purely online, while traditional banks use a mix of physical branches and digital presence. Neobanks only offer a select range of services as compared to traditional banks, but these services are often highly personalized using state-of-the-art technologies, like AI.?Neobanks serve customers at around 1/3rd of the cost of traditional banks. While the regulators in India are welcoming and in favor of fintech innovations, neobanks face several regulatory, safety, and compliance hurdles. Like all financial entities, they have their share of pros and cons:

Pros: Lower operating cost, simpler swift process, ease to use, 24*7 service of all types of services, highly secured, buy first and pay later, etc.

1. Lower Charges

Neobanks need no physical space branches, saving expenses like rent, electricity, infrastructure, and other expenses being major chunks of traditional banks’ bottom line. Lower fees and higher interest rates are passed on to customers. As more resources in terms of money or manpower, to transform CX.

2. Ease of Use

As neobank works digitally in a virtual world. All services are available with a Smartphone?having iOS or Android OS. Everything is verified through code or other methods but at home. Some just require a video call for the final procedure.

3. Smoother UI

In 2018, FIs’ top strategic priority was improving?the consumer’s digital experience through building simple, robust, and aesthetically pleasing ??Neobank apps. powerful,?and keep updating on a real-time basis. The apps developed by traditional FIs are containing glitches and lags as their main domain is not digital-first like?Neobanks have a team of the best-talented software technology expertise and keep themselves align with the latest improvement to offer some of the smoothest, sleekest banking experiences.

4. Lesser Restrictions

Neobanks are not having actual banks. So, any banking licenses are not regulated by the RBI. Thus, they find more autonomy than traditional banking institutions. This helps to keep their costs low.

Cons: Impersonal experience, lack of trust and reliability, Lack of well-defined protocols and legal structure:?

Regulation Around Neobanks in India

In recent years, the GOI has been making immense progress in advancing the fintech industry. At present, it aims to bridge the existing gap in the market through the development of digital banks and products. Some of these initiatives have drawn a considerable amount of traction.?Neobanks offer services that cut across all three financial regulators, namely, the RBI, the Securities Exchange Board of India (SEBI), and the Insurance and Regulatory Development Authority of India (IRDAI).?While the government is closely monitoring the “buy now, pay later” (BNPL) sector, it has no plans of regulating it for now. NITI Aayog recently released a discussion paper rooting for authorities to allow neobanks to become fully licensed digital banks. Despite receiving such suggestions for creating full-stack digital banks, the RBI observed certain risks and uncertainty which have held it back from approving the move.??

Bottom Line?

The average Indian consumer is looking for customized and holistic financial management solutions. Millennials and Gen Zs are now more financially literate than ever. Neobanks draw on their strengths – using technology to build engaging features that track users’ cash flow and financial behavior and recommend suitable instruments. People looking for low-interest credit, high-interest savings, and seamless, low-cost services can rely on neobanks. BCT Digital is a global technology company specializing in innovation for financial services.

.Neobanking for business

Neobanking is for tech-savvy, experimental people who can widespread expansion by the rapidly growing sunrise industry. New-age banking is?still in the nascent stages but is empowered to?revolutionize the traditional FIs industry. Moreover, people are embracing?digital payments?at a large scale on a micro level like tea, and fruit vendors just need a QR Code.

?Earlier this year, we?partnered?with the International Data Corporation (IDC) to understand the challenges Small and Medium Enterprises (SMEs) face due to reliance on legacy financial systems. We found that the annual average loss suffered by SMEs depending on legacy systems is Rs. 67 lacks?per SME.?Businesses that rely on traditional systems often have to carry out banking operations manually, running the risk of repetitions, errors, and unnecessary delays. Businesses, especially SMEs, would benefit immensely from switching to neobanking. With a neobank like RazorpayX, founders can supercharge every aspect of their financial operations.

?·???????Save time, reduce manual effort, and eliminate errors with?instant payouts

·???????One single,?powerful dashboard?for all your money management needs

·???????Intelligent invoice generation for?vendor payments?

·???????Smooth?integrations?with all major accounting platforms

Some of the best neobanks in India

With the rising popularity of neobanking, there are more and more such new-age banks every day. The top few are Fi Money, Jupiter, Freo, and RazorpayX.

India has the second-largest number of internet subscribers and smartphone users which presents a very positive growth prospect for neo-banks in India. In recent years, neo banks are raising huge amounts of funds from major investors globally since they recognize the potential of a large underbanked segment in India.?The?future of neo-banks in India?is expected to change exponentially. The Niti Aayog in November 2021,?proposed setting up full-stack “digital banks” in India?which will entirely rely on the internet to offer their services and not on their physical branches. At Niyo, we place a huge emphasis on customer referrals, rewards, feedback, and testimonials. We actively engage with our 50K+ users in the?Niyo community. With such a strong digital presence, forging connections and prioritizing the customer experience are key focal points for any neo-bank, and we at Niyo make all decisions with our customers at the heart of it.?Neo banking in India?currently mostly falls in the first category.?While some neo-banks carry banking licenses, a majority partner with traditional banks instead of obtaining their own banking license. In this operating model, the banking partner provides the overall platform for managing customer accounts, holding customer funds, and the rails for interbank payments and settlements. The neo bank is bound for product distribution and managing the end-to-end customer journey from customer acquisition to servicing. Many neo-banks, such as Monzo in the UK, Xinja in Australia, and N26 in Europe, offer banking products and services, just as a traditional bank would. Other neo-banks, such as UK-based bank Starling, offer both?low and no-fee accounts?and services. Some banks also offer tools to build both branded and white-labeled banking products and services, playing into the concept of “Banking as a Service”. It is often modeled on the likes of successful platform economy giants like Uber and Netflix.?For instance, Niyo has a range of products that cater to different user segments:

• NiyoX: A 2-in-1?Digital Savings Account?+ Wealth Management?bundle for the millennials with add-on benefits like?Invest the Change?for micro-investing and?Digital Salary Account?
• Niyo Money:?A complete wealth management suite for active investors
• Niyo Global:?A zero forex markup card for the global Indian traveler
• Niyo Bharat: A prepaid salary card for blue-collar workers

Traditional banks and digital banks are always backed by financial institutions, and there can be a lack of synergy between what the customer wants and how it is offered to them. Although neo-banking is a newer concept in India, it has seen tremendous growth ever since it first started in 2013. Neo banks began gaining momentum in 2016 when only 22% of mobile users in India were using smartphones, Jumping to 2020, the number had reached 54%, and it is expected to rise to 96% by 2040.?There are currently about a dozen neo banks in India.

?Name of the 12 Neobank Founding Year

Razorpay 2013, Instapay 2013, OcareNeo 2015, Niyo 2016, Kotak811 2016, Open 2017, Finin 2019, Jupiter 2019, FI Money 2019, North Loop 2019, Digibank 2019, ZikZuk 2020. These 12 Fintech innovations have allowed enhanced customer experience and satisfaction. Neobanks are gaining popularity across the globe as they provide the next level of convenience for their customers, for a better experience, unlike any traditional banking experience.

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What are the Factors Behind the Rising Popularity of Neobanks in India & Worldwide?

Neobanks are getting immensely popular amongst gen-x. This is because neo banking is breaking all the stereotypical red tape of banking through a technologically advanced digital system. They provide all the advanced financial services round the clock, quickly, and at lower costs. For most people, these banks are convenient and hands-on as they are able to provide vital financial services at the touch of a fingertip. So, basically, it all comes down to convenience. India and the rest of the world are fast adapting to a digital lifestyle, and neobanks fit right into this lifestyle. Being able to bank without leaving your home or office makes it super convenient for our fast-paced life. Despite being a new banking system, neobanks have garnered a lot of popularity amongst individuals and commercial entities in India.

What neobanks are, how they work, and the top neobanks in the US & world in 2023

Powerful data and analysis?on nearly every digital topic

• Bank account opening is surging back after a slump during the pandemic, and consumers are focused on digital.?
• Insider Intelligence forecasts that the number of US neobank account holders will grow 46.4% between 2022 and 2026.

?In 2022, neobank investors shifted focus from growth at all costs to profitability. Most of the world’s 291 neobanks were not able to turn a profit—and investors are losing patience. With the funding route unlikely to abate, 2023 is shaping up to be a do-or-die year. Industry pundits are already speculating whether neobanks can pivot quickly enough to survive. They’ll need to align their marketing strategy, products, policies, and customer support activities to drive profitable growth—while also bracing for regulation. Successful neobanks will emerge from the ashes leaner, stronger, and more efficient.

Top Neobanks in the US

These are the top four US digital-only banks, by market account holders, according to Insider Intelligence forecasts for 2023:

• Chime (21.6 million)
• Varo (5.4 million)
• Current (4.6 million)
• Aspiration (4.5 million)

Top Neobanks in the UK

These are the top four digital-only banks, by account holders, according to Insider Intelligence forecasts for 2023:

• Monzo (6.6 million)
• Revolut (4.1 million)
• Starling (2.2 million)
• Monese (1.6 million)

?Neobank industry growth

The pandemic fueled massive growth in digital-only bank account openings. But as account opening demand has swung back toward 2019 levels, rates will settle into single-digit growth through 2026. In pre-pandemic 2019, just over 1 in every 20 US adults had digital-only bank accounts. From 2020 to 2021,?digital account opening?rates kicked into overdrive, as lockdowns eliminated in-person account openings and neobanks enticed new customers with incentives like early access to pandemic stimulus checks. By the end of 2021, 15.4 million adults had opened bank accounts digitally—an increase of nearly 66% over 2019. Looking ahead, growth has plummeted, and digital account opening rates in 2022 are now slightly below those of 2019. Neobanks is a key factor. After pumping up overall account opening rates, neobanks’ marketing budgets dried up and incentives for new customers disappeared, causing a slowdown in account opening rates. Expect low growth ahead—the CAGR of new account openings from 2022 to 2026 will be under 1%.

A full-stack neobank is a standalone bank with its own banking license and can operate completely independently. Comparatively, a front-end-focused neobank does not have its own banking license and must operate in partnership with either a traditional or legacy bank to provide its services to customers.?Consumers’ growing frustration with legacy banking service providers stems from their core legacy technology and high costs. These downfalls combined with an increased appetite for digital solutions have accelerated the shift to digital-only banking. Increased consumer interest in swapping out cash and credit cards for financial service mobile apps is stimulating competition globally, which has driven neobanks to roll out extravagant features, like overdraft protection and sign-up incentives.?

CONCLUSION

?The money would become nothing but alphanumeric data in the form of arranged energy impulses. It would move around the world at the speed of light at minuscule cost by in?nitely diverse paths throughout the entire electromagnetic spectrum. Any institution that could move, manipulate, and guarantee alphanumeric data in the form of arranged energy in a manner that individuals customarily used and relied upon as a measure of equivalent value and medium of exchange was a bank. It went even beyond that.?Inherent in all this might be the genesis of a new form of global currency.

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Affirm: Back on the Road

Affirm’s IPO is back on, after having been postponed from last year. ?After a detailed analysis of the company as part of?Mario Gabriele’s S-1 Club.?Critic warned the company that is too reliant on Peloton, which shared 28% to its total revenue in its last full FY. But fintechs have a history of working very closely with a narrow group of companies before diversifying out. When Square came to the market in 2015, 14% of its last full financial year revenues came from Starbucks, and those were loss-making. When PayPal came to the market the first time around, 67% of its volume was from eBay.?Bloomberg and ICE were both highly reliant on few clients when they started out. Perhaps the difference is that at eight years old, Affirm should have achieved higher diversification by now. The upside is that Shopify helps to address the issue.