If you're a consumer in the developed world in the twenty-first century, you've definitely spent a significant
amount of time on your computer or smartphone. Consider this: you can use phone apps to order goods and services,
store your images on cloud services like Google, Dropbox, or Microsoft, and even work from home. The recent rise
of
neobanks is another instance of the fast digitalisation of a crucial aspect of our life, especially the way we
manage our finances. This article explains the differences between neobanks and traditional banks and what you
should know before opening an account with one.
What is a Traditional Bank?
Traditional banks are the brick-and-mortar institutions we've relied on for centuries. They offer various
financial
services, from checking and savings accounts to loans, mortgages, and investment products. With physical branches
and established reputations, traditional banks provide many customers a sense of security and stability.
Pros and Cons of Traditional Banks
| Pros |
Cons |
| They are more popular due to their more extended standing and high accessibility |
Higher interest rates and other fees |
| Wide range of banking and non-banking products and services and Branches in various cities and towns |
Availing of services requires visiting the branch physically, which is time-consuming |
| They are more secure as they are regulated by RBI |
It may not offer the latest technology or features |
| Online and offline customer service facilities |
Less flexible compared to neobanks |
| Laughing Bacchus Winecellars |
Yoshi Tannamuri |
| Magazzini Alimentari Riuniti |
Giovanni Rovelli |
What is Neo Bank?
Neobanks are a new type of financial institution
reversing the conventional banking industry. In contrast to traditional banks, neobanks are fully online
institutions without any physical branches. This enables them to concentrate on creating efficient internet
platforms and mobile app experiences that are available anywhere, at any time.
Pros and Cons of Neo Bank
| Pros |
Cons |
| Tech-savvy and User-friendly- Neobanks have easy-to-use interfaces that make handling
your finances simpler. |
Limited Services- May not offer wealth management, safety deposit boxes, or certain loan
options. |
| Lower Fees- Neobanks are often affordable, lower monthly fees, minimal hidden charges,
and sometimes even free transactions |
Security Concerns- You could be worried about the security of your financial and personal
data because neobanks are fully digital. |
| 24/7 Accessibility- Manage your finances from anywhere, anytime through mobile apps and
online platforms |
No Physical Branches- No in-person assistance or option to deposit cash except through
partner networks. |
| Fast and Efficient Transactions- Neobanks are often quicker than traditional banks to
execute transactions; some even provide instantaneous money transfers. |
Reliance on Technology- Neobanks are primarily dependent on technology, thus in the event
of any malfunctions or outages, you might not be able to access your account. |
What’s the Difference between Neo Banks and Traditional Banks?
Neo banks are exclusively digital, whereas traditional banks operate both physical branches and digital services.
Neo banks typically offer lower fees and charges compared to traditional banks, which in turn provide a wider
array of services and facilities.
Let’s see the comparison table:
Neo Bank Vs Traditional Bank
| Parameter |
Traditional Banks |
Neo Banks |
| Availability |
Provide services via apps, online, and physical branches. |
Provide banking and financial services exclusively online. |
| Demand |
comparatively more well-liked because of the actual presence |
There is a gradually growing demand for this new banking model. |
| Services Offered |
Bank accounts, Locker facilities, Credit cards, Money transfer services, Loans and investments,
Relationship managers, ATMs |
Bank accounts, Loans and investments, Money transfer services, Credit cards (may be limited), Relationship
managers (not usually available) |
| Banking Licence |
Have appropriate banking licences since they are regulated by the Reserve Bank of India (RBI) |
Not directly regulated by the Reserve Bank of India (RBI) and may not have all the banking licences |
| Fees and Charges |
Higher interest rates and additional fees and charges |
Comparatively lower interest rates and other associated charges |
| Customer Service |
Offline as well as online customer service |
Only online customer service |
Why Do People Use Neobanks?
People use neo banks for a variety of reasons, including:
- They are easy to use and designed with the customer in mind.
- They are convenient and fit well with a digital lifestyle.
- They offer lower fees than traditional banks.
- They offer higher interest rates on checking and savings accounts.
Things to Consider about Neobanking
Here are some things to consider about neo-banking:
- Do you value face-to-face interaction? Unlike traditional banks with branches, neobanks are
entirely digital and lack physical locations. This means you won't be able to speak to a person in person if you
need help with something complex or have to carry out a complicated transaction.
- Are you comfortable using technology? Managing your neobank account requires using their
mobile app, so if you're not confident using technology, a neobank might not be the best fit for you.
- Security: Neobanks are generally less regulated than traditional banks, which means they
might be more susceptible during financial crises and your deposits might not always be insured. Make sure to
check if your chosen neobank has deposit insurance.
- Limited services: Neobanks typically don't offer a wide range of services beyond basic
banking services like checking and savings accounts, money transfer and payment services, and some financial
education tools. If you need more than the basics, such as loans, credit cards, wealth management, or retirement
products, you'll likely need a traditional bank.
FAQs
1. Is a neo bank a fintech?
Indeed
neo banks are safe, a neo-bank is a
type of fintech offering financial services online. They offer:
- Savings and checking bank accounts
- Payment and money transfer services
- Financial education tools, like budgeting apps
2. Are traditional banks better than neobanks?
Depending on what you need from a bank. You might favor traditional banking if you'd rather use actual branches
for your financial needs. Neobanks, on the other hand, can be a fantastic choice for you if you enjoy using
digital services.
3. Do Neobanks have banking licenses?
The majority of neobanks do not possess a banking license, but certain neobanks can hold a special, full, or
partial license. With these licenses, neobanks can provide services that traditional banks provide, but they can
do so more affordably and with a greater emphasis on the user experience.
4. What is the difference between a neo bank and a digital bank?
Here’s the difference between traditional banking vs modern banking:
- Neo banks are entirely digital, whereas traditional banks have physical branches in addition to offering
digital services.
- Neo banks typically have lower fees compared to traditional banks.
- Traditional banks provide a wider range of services and facilities than neo banks.
- Traditional banks hold licenses from the RBI, while only a select few neo banks have obtained such licenses.
