Neo banking is a concept wherein banks operate solely online or through apps. They don’t have brick and mortar branches but users can do everything they could at a traditional bank and more. Neo banks bring more competition to the banking industry and contribute to fintech. They typically specialize in services that the well-established banks may not focus on enough or overlook entirely.
Neo banking-Technology has rapidly changed how people do things. Instead of going on a weekly grocery shopping trip, they might place an order for necessities within an app and get the stuff delivered a couple of hours later. Or, individuals might tap into the power of telemedicine and use specialty apps to see doctors about their symptoms without leaving home. This tech-centric approach extends to banking, too. Neo banking is a concept involving banks that operate solely online or through apps. They don’t have physical branches but allow users to do everything they could at a traditional bank and more.
1. Neo banks bring more competition to the banking landscape
Neo banks are part of a broader category called challenger banks. They’re usually no more than five years old and typically specialize in services that the well-established banks may not focus on enough or overlook entirely.
Another interesting thing about neo banks, in particular, is that their operators do not need banking licenses to function. Instead, they partner with licensed entities that offer licensed-based services as required.
When doing business with unlicensed neo banks, people usually have to have accounts at licensed banks. However, some of them get licensed eventually. One of them is Volt, an Australian neo bank.
It received an unrestricted deposit-taking license from the respective authorities. Steve Weston, the bank’s co-founder and CEO, recently addressed banking incumbents at a financial summit. He warned that they should be very afraid of his bold business model. Weston’s approach is similar to the one used by some neo banks in the United Kingdom. He’s also taking time to host sessions for potential customers and find out what they need from banks.
Despite the extra competition posed by neo banks, analysts believe the big banks shouldn’t feel threatened yet. Neo banks often don’t have difficulty attracting new customers.
But, it can be tough to retain those clients while turning a profit. Time will tell which of the neo banks can best rise to the challenge, especially when neo banks try to scale up.
2. Investors show enthusiastic support
Besides ramping up the competition in the FinTech sector, some neo banks successfully appeal to investors. For example, MoneyLion is a U.S.-based company describing itself as a mobile bank. Users can get fee-free banking or investment accounts, plus receive cash from thousands of ATMs around the world. The company raised more than $200 million to date with help from investors.
From the consumer side of things, MoneyLion makes most of its money from subscription services. It will reportedly use the newly raised capital to improve its subscription plans and customer perks.
Neo banking in India captured investors’ attention, as well. Open, an Indian neo bank catering to owners of small and medium-sized businesses recently raised $30 million in a Series B funding round. It has 100,000 members with 20,000 more users signing up each month.