A couple of months ago, someone told me about a digital on-boarding banking platform which allowed her to take a picture of herself, upload the minimal documents needed, and simply go to a local ATM to verify her identity proof. This was in the midst of the pandemic and with no requirement for physical interaction, seemed to be a fabulous service.
Onboarding is the process of welcoming new clients into the business.
It was later that I found out that she was dealing with a neo-banking platform – a wonderful amalgamation of fintech with core banking operations. This essentially means that the application or web-based interface allows a user to create banking accounts and interact with banks completely digitally. A company or individual can get credit, make payments, have credit and debit cards, and have a full banking relationship through a neo-banking platform. They aim to ease out the on-boarding process and the physical interactions necessitated by banks while offering the same or more tailored services.
While they seem like they are the same as the digital platforms of banks, do not be deceived. Neo Banks are not banks at all and they do not need to have a banking license. They are simply digital platforms that act as the front end for banking products and services and they function based on tie-ups with existing and legacy systems within the banking ecosystem. This is what also sets them apart from Challenger Banks that have online banking as a priority but hold a banking license.
Since they are not burdened by legacy systems, it is easier for Neo Banks to adapt to the needs of the customer and keep themselves light and responsive to customer requirements. By reducing the lead-time for the setup of an account for instance, customer conversation after the initial iteration is likely to be much higher.
Neo Banks have been around for over five years, however, during the pandemic, they have gained momentum. In the USA for instance, digital-only account holders’ penetration has been projected to grow from 11.4 percent in 2021 and reach 19.9% by 2025.
What makes this such an interesting business model is the flexibility it offers. The products offered can range from traditional products to newer products such as crypto currencies as well as latest technology services like AI based interfaces.
Bahrain-based Bank ABC that has ila bank, launched Fatema, the first emotionally intelligent digital employee in the region. Fatema engages with customers using a combination of digital neurology and AI. Gulf International Bank has the Meem platform while elsewhere in the GCC, Neo Banks are sprouting up as well. In the UAE, there are Liv and E20 by Emirates NBD, Mashreq Neo by Mashreq Bank, and ADCB Hayyak by Abu Dhabi Commercial Bank.
The segment that probably benefits the most from these neo banking and challenger banking systems, are start-ups and SMEs which benefit from the loan products and credit facilities that these banks are able to offer. Lifestyle-focused Neo Banks are also seeing a rise – and more such niches are likely to emerge. With an increasing need to have a flexible approach to financing, these advanced digital systems are the go-to products for a world where digital signatures and paperless interactions are the norm rather than a luxury.
Pria is a business coach and advisor. You can follow her @businesscluess33 or read more of her articles at www.business-clues.com