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What is a Neobank and How to Use It

What is a Neobank and How to Use It
sukanya
Sukanya24 February 2024

Banking operations previously required visiting branches. Today, they are being heavily digitised, as users want to have access to banking services instantly through their mobile phones or laptops.

A new player has emerged on the financial scene – the Neobank. With their innovative approach to banking and emphasis on digital-first solutions, neobanks are revolutionising the banking sector.

What is Neobank? 

Neobank meaning or neo banking meaning refers to fintech (financial companies backed by tech) that carry out operations similar to banks but are entirely digital and rarely have physical branches. 

Neobanks invest heavily in creating a digital-first banking system to provide cutting-edge financial services similar to any other traditional bank. 

Neobanks are not directly governed and regulated by the RBI but have various banking partners such as HDFC, ICICI, and Axis Bank to assist them in providing financial services through their banking infrastructure and channels. 

Neobanks offer banking services such as savings accounts, checking accounts, payment processing, money transfers, and sometimes lending services entirely online. 

How Do Neobanks Work? 

Neobanks leverage technology extensively to provide a seamless and convenient banking experience. They often incorporate advanced features such as instant money transfers, automated budgeting tools, personalised financial insights, and round-the-clock customer support through chatbots or online messaging.

Here is how you can open a Neobank account online.

How Do Neobanks Work?

Step 1: Research and Selection

There are more than 20 neobanks in India. Thus, comparing them on their cost structure and services is important. 

Step 2: Registration 

Download the mobile app of the neobank or visit their website to start the account registration process. You will have to provide personal details such as name, date of birth, address, email, phone number, and identification proofs such as PAN or Aadhar. Then, choose the type of account you want to open. 

Step 3: Verification and Account Setup

Once you have submitted the account opening application, the neobank verifies the provided information. After successful verification, they set up the account. 

Step 4: Confirmation and Activation 

Once all steps are completed, you will receive confirmation that your account has been successfully opened. You may need to activate your account by following the instructions provided by the neobank, such as verifying your email or phone number.

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Features of Neobanks 

Some common features offered by the best neobanks in India include the following.

Features of Neobanks
  • Checking and Savings Accounts
    Neobanks provides both checking and savings accounts with competitive interest rates. These accounts are usually accessible entirely through digital platforms. 
  • Debit Cards and ATM Withdrawals
    Neobanks provides debit cards to customers after successful account opening, generally with fee-free transactions at merchants and for ATM withdrawals.
  • Budgeting and Savings Tools
    Neobanks often incorporate budgeting and savings tools into their mobile apps or online platforms. Users can utilise such features for expense tracking, spending categorisation, financial goal setting, and targeted savings. 
  • Money Transfer Services
    Neobanks offers money transfer services, allowing users to send and receive funds domestically and internationally. These services may include peer-to-peer (P2P) transfers, wire transfers, and foreign remittances.
  • Integration with Other Financial Apps
    Many neobanks offer integration of their accounts with other financial apps. For example, they may allow users to connect their neobank accounts with budgeting apps, investment platforms, payment services, or lending platforms. 
  • Security
    Security is a critical feature offered by neobanks to ensure the safety and protection of users' financial information and transactions. Neobanks use security measures such as encryption, multi-factor authentication, fraud detection, etc. 
  • Lower fees & competitive rates
    Since neobanks spend nothing on opening physical banks and branches, they have the potential to offer banking services at a lower fee and comparatively higher interest rates.
  • Limited services
    While they may expand their offerings over time, they often prioritise simplicity and user experience by focusing on these essential services.

Pros and Cons of Using a Neobank

For a better understanding of neo-banking meaning, here are the pros and cons of neobanks.

Pros

Pros of Using a Neobank
  • Convenience & Accessibility
    Neobanks offers 24/7 access to banking services through mobile apps and websites, allowing users to manage their finances anytime, anywhere. Users can enjoy a paperless banking experience, eliminating the need for physical paperwork and manual processes.
  • Transparency & user-friendliness
    Neobanks often feature simple and intuitive interfaces that make navigating and understanding their financial accounts easy. The policies and terms are communicated clearly, promoting accountability and transparency. 
  • Innovation & personalisation
    Neobanks takes an innovative approach to offer customised features to users. They leverage their innovative features and cutting-edge technology to enhance the overall digital banking experience. 

Cons

Cons of Using a Neobank
  • No Physical Branches
    Neobanks lack physical branch locations, which means users may have limited access to in-person support or assistance for complex banking issues. Furthermore, they have to rely on internet connectivity to access all the services. 
  • Newer Players
    The introduction of neobanks and neo-banking platforms is fairly new, with the fintech firms not having the same established reputation and history as traditional banks. There is always the risk of inadequate revenues or bankruptcy. 
  • Data Privacy Concerns
    Neobanks are firms that may raise foreign funding, leading to users having concerns about how they collect, store, and use their personal and financial data. While neobanks implement robust security measures to protect customer data, there may still be risks associated with data breaches or unauthorised access.

India has numerous neobanks that offer their services with unique banking features. Here are the top 10 popular neobanks examples in India.

Conclusion 

Neo banking services offer a compelling alternative to traditional banking, with a host of potential benefits and considerations for users to weigh. On one hand, the convenience, accessibility, and transparency of neobanks make managing finances easier and more efficient than ever before.

However, it's essential for users to also consider the limitations of neobanks, such as the lack of physical branches, the relative newness of some players, and concerns about data privacy. By weighing these factors carefully and understanding their individual banking needs and preferences, users can decide whether neobanks are the right fit for them.

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Frequently asked questions

Q1. What is the difference between a digital bank and a neobank?

Ans: Digital banks refer to any bank that operates primarily through digital channels, including traditional banks with digital capabilities and newer digitally-native banks. Neobanking, conversely, is a subset of digital banks that are exclusively digital-first and typically do not have physical branch locations.

Q2. Are neobanks under RBI?

About the author
sukanya
Sukanya
Legal & Compliance
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