As a modern-day consumer residing in a developed nation, you’ve likely devoted a significant portion of your life thus far to your smartphone and computer. Reflect on it: you make purchases and access services via mobile apps. Similarly, you store your photos securely in the cloud using platforms like Google, Dropbox, or Microsoft. Moreover, you even have the flexibility to work remotely from the comfort of your home.
Another noteworthy example of the rapid digitization of a crucial aspect of our lives, particularly our financial affairs, is the recent emergence of neo banks.
In this article, we’ll learn what are neo banks and traditional banks. This post will also highlight the distinctions between neo banks vs traditional banks for you to consider the best option.
What are Neo Banks?
Neo-banks are financial technology (fintech) businesses that only do business online, typically via mobile applications. They operate as online banks, have no physical locations, and offer services that regular banks do not frequently offer.
These organisations work with bank partners in India rather than having their banking licences to offer authorised services. This structure resulted from RBI restrictions, which now prohibit banks from becoming totally digital. However, some international banks offer digital-only goods via their local affiliates or subsidiaries.
Advantages of Neo Banks
- Hassle-free account opening
The process for opening an account at traditional banks is frequently burdensome in the present dynamic financial environment. Neo banks, however, provide a more effective substitute. Customers may quickly open accounts and make use of the enhanced features provided by the neo banking system since they do away with the requirement for a time-consuming account opening process.
- User-friendly interface
Neo banks’ simplified client experiences and hassle-free banking services are their main selling points. Neo banking uses mobile applications to function and successfully solve the problems that clients frequently run into while using digital services from public sector banks. This technique is user-friendly, which promises greater acceptability among users and improved banking.
- Lower costs
Neo banks’ operating expenses are much lower than those of traditional banks, partly as a result of the elimination of the need for physical branches and related infrastructure. Reduced banking fees are one way that this cost-effectiveness is transferred to the final users. Customers frequently see greater interest rates as a result of the decreased banking expenses, which is a bonus.
What Is a Traditional Bank?
A traditional bank manages the money that clients deposit into their accounts and provides customer care primarily through its network of physical branches. Traditional banks have a long history that dates back many centuries, which explains why they have built strong sociological, financial, and political ties in the real world.
Advantages of Traditional Banking
- Greater range of financial services
Traditional banking institutions may provide certain financial services that are not accessible to digital platform users. One such benefit of traditional banking is the option to deposit physical cash, which is not available through digital banking channels.
- Developed ATM network
Traditional banks frequently maintain an extensive network of ATMs at the disposal of their customers. In some cases, larger institutions may boast a nationwide network spanning tens of thousands of machines. These ATMs typically do not impose transaction fees for individuals with accounts at the bank or its affiliated partners.
- Relationship banking
Traditional banks offer customers the opportunity to establish a personal, in-person rapport with their staff members. This familiarity can prove valuable when you require additional assistance or support. Read on to learn more about neo banks vs traditional banks.
Comparison Between Neo Banks and Traditional Banks
Here’s a difference between neo banks and traditional banks:
| Aspect | Neo Banks | Traditional Banks |
| Physical Presence | Typically online-only, no physical branches | Physical branches are prevalent |
| Ownership Structure | Often, technology startups or fintech companies | Established financial institutions |
| Account Opening | Quick and digital, often via mobile apps | It may require in-person visits and paperwork |
| Services Offered | Basic banking services with a focus on digital features | Full suite of banking services, including loans and investments |
| Cost Structure | Low overhead costs, often offer fee-free accounts | May charge various fees and have higher operating costs |
| Regulation | Subject to banking regulations, partnerships with traditional banks may exist. | Highly regulated and long-established institutions |
| Accessibility | Geared towards tech-savvy customers, often more accessible to younger generations | Accessible to a wide range of customers |
Conclusion
To sum up on difference between neo banks and traditional banks, neo banks are touted as the future of banking, not just in India but on a global scale. Projections indicate that the Neo banking sector is likely to experience an exceptional compound annual growth rate (CAGR) of 53.4% between 2022 and 2030.
This is a tremendous level of growth unprecedented in any industry. This growth assures the enduring presence of Neo banks. However, it’s important to note that they do not possess the framework and structure required to replace the traditional banking model entirely.
FAQs on NEO Banks vs Traditional Banks
Which is better- Neo Bank or Traditional Bank?
The choice of the superior bank depends on your specific needs. Your ideal bank can vary significantly based on your specific service needs. As per the difference between neo banks and traditional banks, Neo banks are known for their lower fees, user-friendly sign-up processes, and appeal to tech-savvy individuals. On the other hand, traditional banks are characterized by their reliability, physical branch accessibility, and adherence to regulatory standards. However, they tend to be costlier, offer lower interest rates, and come with additional drawbacks.
Do Neo banks have banking licenses?
No, the majority of neo banks lack a banking licence. However, there is a possibility that certain neo banks may hold a partial, full, or unique banking licence. Neo banks are now able to provide services similar to those provided by traditional banks. Additionally, they offer a stronger emphasis on customer convenience and accessibility.
Does RBI regulate neo banks?
Although the RBI does not directly govern neo banks, the apex bank is ultimately responsible for their functioning. Through their network of affiliations with conventional banks that hold active banking licences, traditional banks have indirect control over neo banks.