With the advancement in time, technology has evolved rapidly giving pace to the introduction of new innovative products. This advancement has also been witnessed in the financial technology industry and hence the past several years have experienced a massive boom and emergence of thousands of new fintech businesses.

Therefore, non-bank fintech firms have given rise to a new breed called the new banks which enable resolving online experiences by providing little or no fee services. Hence with the advent of neo-banks in India, the fintech industry has successfully filled the void in the neo-banking sector.

So scroll down to learn more about what neo-banks are, how they are different from traditional banks, how they work, their benefits and many more details.

What are Neo Banks?

The key to defining a neo-bank is that it is one of the latest and most effective phenomena that represent digitalisation in the modern financial technological industry. These banks are also known as the "Challenger Banks" provide banking services without having any physical presence. They primarily focus on services that are in high demand by the tech-savvy generation, like online savings accounts,  digital money transfer, payment solutions, lending, and etc. 

What is Neo Banking?

Neo banking refers to the digital-only banking services that can operate your account entirely online, requiring no physical presence. It works through mobile applications, websites or sometimes both. These banks do not tend to have any associated infrastructure, however, offer all the banking services as traditional banks.

Along with that, these banks use the latest technologies including AI, AR and VR which enables them to provide superior customer experiences as compared to the traditional banks. Hence, neo-banks generally cater to the financial needs of the tech-savvy generation which include immediate fund transfers etc.

However, their expertise lies in digital banking operations, along with artificial intelligence to provide you with several customised banking services at a minimal cost.

Types of Neo Banks

Even though the services neo banks provide are somewhat similar to the traditional banks, they differ on certain points like their types. Read below to know the different types of neo-banks available in the financial industry:

• Digital Banking Units

Digital banking units refer to the independent digital units or the standalone version of an established bank. One prime example would be the YONO of SBI (State Bank of India).

With the ongoing digital advancements in the country, it has now become crucial to have a digital standalone bank or a virtual banking licence in order to cater to the financial needs of the new and updated generation.

However, already established banks can only acquire their virtual banking licence only if they have sufficient capital to ensure the deposits of their investors.

• Front End Neo Bank

A front-end neo bank does not tend to have a banking licence to operate services. Hence these banks need to rely on the partnership of other traditional banks or NBFC to have backup when providing services to their customers.

These types of neo-banks often act as the piggy banks on the balance sheets of the traditional banks since they do not have their own banking licence to work as a standalone bank.

• Full Stack Digital Banks

Full-stack digital banks tend to offer a broad selection of banking services, hence the name. However, they need to have the approvals of the regulatory banks to conduct such services. They can issue loans and deposits along with maintaining their independent brand and balance sheets.

List of Neo Banks in India

Some of the most popular lists of neo-banks available in the country are given below:

• Freo: It is one of the biggest neo banks in India that offers smart and modern banking solutions along with 100% guaranteed security of your transaction and reward points.
• Jupiter: Jupiter works in partnerships with the Federal Banks. Along with zero balance facilities, it also offers 1% reward points on UPI transactions and for using debit cards. Their savings mechanism also provides a 2.5% interest.
• Fi Money: Fi Money also works in partnerships with the Federal Banks. These offer zero balance facilities and access to opening multiple accounts with 5.1% interest on savings accounts and a 1% interest charge for premature withdrawals.
• Fam Pay: Fam Pay allows you to use your virtual payment cards for online shopping to make payments internationally and domestically. It also has a unique feature of inviting the younger generation to discuss and debate on the recent financial systems and policies.
• Instant Pay: Instant Pay is known for executing numerous transactions per day through its website and mobile application. It has partnerships with ICICI Bank, Axis Bank, Yes Bank and IndusInd Bank. It implements services like instant account opening, 24x7 customer support, account tracking etc.
• Razor Pay X: Razor Pay usually refers to a one-stop destination for all your financial requirements in a digital ecosystem. It has unique software that allows you to customise it for business payroll by scheduling invoices. It also enables tax payments, granting urgent loans etc.
• Mahila Money: Mahila Money has been established in partnership with a Non-Banking Financial Company (NBFC) called Capital Trade Links by Sairee Chahal. It is known for providing free collateral-free loans at a 20% interest rate per annum without any guarantor. It also enables women to communicate about their unique work experiences.
• Niyo: With a motto called “making banking smarter, safer and simpler”, Niyo offers various banking services and products making millions of its customers happy.
• Chqbook: Chqbook primarily focuses on empowering small businesses and entrepreneurs by helping them get customised financial securities and services. It also allows insurance coverage, rewards on transactions, a "Khata" to track transactions, loans with zero fees and many more.
• Finin: Finin usually works in the form of a mobile application, which offers instant account opening and effective services to manage accounts. It also allows insights to its customers to improve their finances in the digital market.
• Akudo: Akudo is aimed at the development of teenagers to teach them the importance of economic freedom. Hence, with the help of a prepaid card, it enables them to learn the value of money. It also provides them with reward points on savings to encourage the young generation to save funds.
• Zik Zuk: Zik Zuk mainly works for the development of SME founders. It offers credit scores and reward points on using the FoundersCard that it offers to its users. It also offers unsecured loans to budding entrepreneurs to help them with their business funding.

Neo Banks Examples

There are several neo-banks available in India. Given below are the examples of some of the most popular of them in the country:

• Instant Pay
• Jupiter
• Niyo
• Fi Money
• Razor Pay X
• Zik Zuk
• Finin
• Freo
• Kotak Mahindra Neo Bank
• OCare Neo
• Open
• Mahila Money
• DBS Bank
• Uni Card
• Zolve
• Mool
• Fam Pay
• Walrus Club

Benefits of Neo Banks

There are several advantages of a neo-bank that enable customers to enjoy effective services to fulfil their banking requirements. Some of its most prominent benefits include the following:

• Lower Cost

Neo banks tend to be much cheaper than traditional banks since these banks require lower costs to implement banking services. This is because these require no physical branches or infrastructure to maintain, hence there are no monthly maintenance fees they need to bear.

Besides, since they tend to have fewer regulations and credit risks, it leads to their increased rate of revenue. 

• Effective Service

Neo banks are efficient in carrying out the daily banking requirements of individuals, which include making payments anywhere anytime. Besides, through neo-banks, fund transfer transactions and loans can also be processed quickly.

All its services are processed fast and in some cases, instantly. Moreover, its services can be usually customised which can resolve the queries of different customers in real-time.

• User Friendly

Neo banks tend to have a very easy and convenient interface which helps the customers to have access to their accounts in a hassle-free way. Hence, these are user-friendly even for those who are new to the digital world.

With the help of its mobile application services and various customised features available on its app, you can create and have access to your account easily and enjoy the banking products it offers.

• 24 Hours Availability

Neo banks implement their services digitally and hence they are available for 24 hours every day including holidays. This is a major benefit as compared to the traditional banks. You can have access to your new bank accounts simply through the virtual cards and enjoy the services anytime.

Besides, these tend to have effective customer support, which lets you customise the services based on your requirements.

• Enhanced Security

Neo banks provide services that are processed and implemented through the latest technology to maintain the security of your accounts. These banks never rely on outdated technology and prioritise their customer's safety at the top. Hence, they ensure the complete privacy and security of all new bank accounts.

How do Neo Banks Work?

Since no banks work digitally these do not have any physical infrastructure and, hence are devoid of any location or employees working in the office. However, like all other traditional banks, their primary job is to provide credit and deposit opportunities. It implements such services in the following ways:

• It works in partnership with already established banks to provide the latest banking services through convenient and user-friendly mobile applications.
• These banks manage end-to-end customer acquisition, providing instant customer support digitally to resolve the issues at the earliest.
• Their banking partners usually keep the funds of their customers and provide them access to those for lending as well.
• Neo banks in India work on data-driven services. Based on tracked data a customer's recent actions they tend to improve the services.

Nevertheless, some of the effective services they offer include the following:

• Online bill payments
• Direct deposit remotely
• Electronic money transfer

Neo Banks vs Traditional Banks

The following table showcases the difference between a neo-bank and a traditional bank: