A neobank is a digital entity that enables the banking and financial services offered by a traditional bank through a digital platform for the consumer. This feature allows customers to conduct banking and a slew of other value-adding tasks without the need to visit a physical branch.
Mobility – The Biggest Advantage of a Neobank
Neobanks are often regarded as digital banks by many since both provide digital services. However, a digital bank is either an online version or a subsidiary of a traditional bank and provides services related to banking alone.
Neobanks, on the other hand, facilitate all services offered by traditional banks, including opening of bank accounts and transactions, and additionally many other financial services including loans.
Neobanks have become more attractive to consumers in light of the Covid-19 pandemic, which led them to adopt digital methods of banking and payments to a greater extent.
Neobanks in India represent comprehensive banking service platforms offering financial services to small and medium-sized businesses and startups as well as tech-savvy customers who prefer to manage funds or transact at the convenience of mobile phones/tablets for all their banking requirements.
In India, neobanks are not 100% digital as yet due to regulatory restrictions.
Neobanking Becoming a Boon for Startups
Neobanks allow startups to significantly save time, stay compliant and access a wide range of services and conveniences that a typical bank cannot offer to the high cost of operating traditional banks.
Additionally, neobanks offer a comprehensive suite of services to startups and businesses that extend beyond transfers, payments and disbursals, to include accounting, expenses and cash flow management, invoicing and compliance, inventory and supplier management, and analytics and reporting.
Amongst the multitude of features offered by a neobank for making startup business banking easier are
- Location-independent and device-independent banking
- Improved customer experience owing to the use of technology
- Single platform for multiple financial services to spend and grow money
- No minimum balance, maintenance or usage charges
- Lower interest rates
- Credit and budgetary advice
- Payables and receivables management
- Invoicing, bookkeeping, taxation and compliance
Running a business for startups becomes a lot easier utilizing neobanking platforms, with most routine tasks such as cash collection, tax returns and other basic accounting processes getting automated.
It is, however, noteworthy that most of these neobanking platforms are startups themselves and not banking giants and therefore, neobanks employ the same business principles applicable to startup businesses and derive the same benefits from their own offerings.
Stretching beyond the day-to-day, neobanks can also address the strategic problems facing startups, namely, availability for capital and scarcity of collaterals, cash cover and credit.
The potential for neobanking to transform the startup and small business landscape in India is tremendous. There are 42.5 million small and medium-sized businesses throughout India as of February 2020, (source: Economic Times, February 2020) representing nearly 95% of the total industrial entities. Only 47% of these entities have access to tools for payments, disbursals, and other essential processes. The availability of neobanks is expected to transform their businesses, imparting significant time and cost savings. These and other advantages are expected to increase the adoption of neobanks by startups even more in the future.