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NEO BANKS- PATH TO PROFITABILITY AND GROWTH

Neo Bank is an online banking operating system with no physical existence. This segment is rapidly growing in India and is bridging the gap between the traditional banking system and customer satisfaction by providing an online banking system for the transfer of funds, opening a bank account, etc.

Neo banks are also known as online banks which operate directly without any traditional branch or physical banking network. They bring the next banking revolution to India by challenging the traditional banking system. Neo banks are fintech firms that provide a digital solution to the problems of customers, thus, bridging the gap between the traditional banking system and customer satisfaction. Under this model, it provides services to retail and small and medium enterprises (SME), digitised financial services which include money transfer, digital savings/current bank account, money lending, mobile-first financial payment solutions to businesses.

As per the current RBI regime, RBI through its 2015 Master Circular on "Mobile Banking Transactions in India - Operative Guidelines for Banks", has mandated the physical existence of a digital banking service provider. As a result, every neo bank has to partner with a traditional bank to provide banking services.

Challenges faced by Neo Banks

1)RBI restrictions have hampered the growth of neo banks. RBI has not permitted a 100% digital bank model in India which has kept the future of neo banks at stake, whether they will be able to provide a full suite of services to its potential customers including deposits and credit.

2) It might be difficult to attract rural customers with limited access to technology. People living in rural areas may prefer to visit physical branches rather than the digital banking systems.

3)Neo banks earn their revenue from UPI transfer charges, interchange fees, and payments which may not be a fixed source of revenue.

4)Neo banks are entirely based on a digital operating system which may include threats to security

One of the main advantages of the neo banking system is the convenience of starting with a neo bank at any place at any time. Creating an account is as simple as signing up for a website. It provides loans with minimal or no paperwork and hence has quick access to loans. It provides low-cost banking services and hence has a great potential for growth.


By:-

Kashika

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