Understanding The Growing Visibility Of Neo Banks

A Neo Bank is a type of bank which has no branch but offers all kinds of banking services to its clients through online banking, telephone banking, mobiles, emails and even provide access to ATMs via interbank network alliance. It helps a bank to reduce all the costs required to maintain a branch. Neo Banks use technologies such as artificial intelligence and machine learning. They are technology driven digital banks.

About 5 years ago, Monzo and Atom Bank, UK fintech players came up with a new concept of banking called the Neo Banks and, today, they have started to evolve in Australia.

Neo Banks offer a user-friendly interface and facilitates the administration of accounts through their apps. Most of the Neo Banks promises to open the account in 3-10 minutes and offers debit cards for no fees and live exchange rates.

The European Regulation, PSD2, is launched to attract new customers through third-party applications (as a back-end provider), or by offering other banks’ services by using their APIs (as a Third-Party Payment Services Provider).

The major challenge faced by these banks includes the acquisition of customers, the profitability, government regulation, low-interest rates as compared to traditional banks to attract customers, and the convenience offered to consumers, which are expected to be reduced by the increase in penetration of smartphone and internet in emerging economies.

Volt Bank Ltd is the first neo bank in Australia which has got the Authorized Deposit-taking Institution (ADI) license from the Australian Prudential Regulation Authority (APRA) on 22 January 2019 to operate as a digital bank, focussing on delivering a better, fairer, and safer way for its clients to manage their money. It is the first start-up and does not have any branch. Till date, the Bank has raised more than $45 million in Tier 1 capital through its four rounds of funding.

There are many Neo Banks in the United Kingdom, such as Atom Bank, Monzo, Revolut, Starling Bank, Tandem bank, etc. All these banks are digital and challenger banks providing banking services through smartphone apps. The concept of Challenger banks has also evolved in the United Kingdom which are small and recently created retail banks which are competing with the large established banks.

In Germany, there are N26 and Fidor bank which are working on a similar digital platform.

Example of Neo Banks in Australia are: Volt Bank, Xinja, and 86400. Similarly, in the United States, there are three Neo Banks, Chime, Simple, and Varo. All these banks are digital banks providing banking services through their smartphone apps.

The WeBank in China is an affiliate of Tencent Holdings Ltd. and is the first digital challenger bank launched in China in early 2015. Another Neo Bank in China, MYbank was launched in June 2015.

In simple terms, Neo Bank is a 100% digital and mobile platform with a new system with a digital front end. It is estimated that the Market size for the Neo Banks is in an uptrend.

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