Neo Banking - the New Age Banking

By Raghavendra Prasad R

Mobile banking has led to a simpler and unique medium for banking, known as Neo Banking or virtual/online banking, which is more suitable for tech savvy customers. These types of banking locations are just a click away as there are no brick and mortar locations. Such banks are seemingly for people who do not intend to personally visit the branches. Neo banking is one of the latest trends in the banking industry. There are currently only 4 such banks in the US.

Neo banking has a lot of scope due to several factors like increase in tech savvy customers & millennials and high penetration rate of smart devices. Neo banks are low cost structured, real time balancing and, some neo bank apps have a unique feature of budgeting or money tracking. So, it suggests you to buy or not to buy a certain product depending upon a customer's budget, and simplicity of user friendly apps.

Advantages of Neo Banking

• Making online transactions simpler: The customers do not have to visit the branch at all and can carry out most of the transactions online, be it over a tab or on their mobiles. Imagine a small business owner having to deal with the traffic during peak hours to visit a bank to conduct a transaction only to find a lengthy queue, which could take up a lot of his time that can be put to good use if he were at his location. Online banking can be executed only with an internet connection even while the customer is travelling.
• Speed of transferring funds: Fund transfer speed is another aspect with online banking that cannot be matched if you were to deposit a check or a draft into your own account or someone else's account. If you were expecting a payment or if you were to pay for an invoice, what better way to pay than transfer online? For one, you are saving paper and you are also transferring funds at a much faster rate and can do anytime-anywhere as long as you have a smart device with a network connection.
• No overhead costs: As these banks do not maintain a physical location, they do not incur any overhead costs. This allows these banks to pass on the benefits to their customers in terms of better interest rates on savings and lower interest rate on loans or mortgage compared to physical branches.​

Neo banks are investing highly in technology and are also providing licenses to use mobile apps to regular and other such banks. For e.g. a neo bank called Moven has lent its technology to Westpac bank for two years.

One of the main drawbacks of neo banking is that it does not support complex transactions not supported by mobile banking. For instance, if a customer has to carry out a transaction of a considerable amount, which is not possible through mobile banking, he/she visits the branch to perform the transaction. But, in case of neo banking, it is not possible as there is no branch, so they have to face the inconvenience of transferring money to any other account in one of the physical branches, which could also take time causing delays in their transaction. As neo banks are mainly online banks, some of the concerns that they face may include:

• Virus and malware attacks on smart devices: Zeus Trojan is a virus, which steals the authentication details like card or pin numbers.
• Wireless network risk: Mobile banking is done through wireless networks, which is risky if it is an open network as there are high chances of hacking used to steal information.
• Authentication issue: If banks have not adopted new technologies like two factor authentication and are still using old systems of authentication of using a PIN or password, it is much more prone to hacking to steal sensitive information.​

One of the ways to overcome is to ensure that the latest technology in security is adopted by banks like biometrics (voice recognition or finger print authentication) to minimize any such risks.

All in all, online banks are here to stay and are already proving to be disrupting the way the banking is done as known to mankind. It is a healthy competition to the regular banks as they are already sitting up and taking notice of these banks and are trying to brainstorm ways on preserving their customer base from being poached by these banks. Only the future will tell how these will fare compared to the regular banks. Until then, it is the customer who is left to choose from among these different banking models.