The phenomenon of exponential growth of new banks in India:- www.deekpay.com

"Banking services are necessary, but banking itself is not," Bill Gates said back in 1994. Flash forward to 2021, and Neobanks (new banks) are changing the financial landscape with their low-cost advantages and the power of technology, bringing stiff competition to traditional banks.

What is the new bank?

The financial services industry is focussing on improving customer experience and satisfaction; however, there is a gap between what traditional banks offer and what customers expect. New Banking is attempting to fill this gap. The New Bank is a banking model that eliminates the need for physical branches and delivers services exclusively through digital means, putting banking services at your fingertips.

By eliminating the need for physical branches and the associated labour costs, the new banks are able to offer fully digitised banking solutions at discounted prices. They offer services such as international payments, funds transfers or credit services. Some of the new banks have also partnered with new types of banks in order to offer a combination of online and offline banking services.

Why a new bank?

India is home to over 2,000 fintech companies. With the government encouraging Indians to move towards a completely cashless economy, fintech companies are playing an important role in realising this vision.

In addition, the impact of the New Crown epidemic has led to an unprecedented growth in demand for contactless banking services. People are gradually moving away from traditional banking and cash in favour of online banking and e-wallets.

The invention of the Unified Payment Interface (UPI) has fuelled this change, which has made it possible for transactions to run smoothly, irrespective of the size of the transaction. By 2020, India's annual transaction volume has surpassed that of China and the US combined, totalling $25.5 billion.

New banks vs. traditional/digital banks

New banks are new entrants to the banking industry and are also known as fintech companies or fintech firms. A simple difference from traditional banks is that neobanks do not charge any fees for opening an account. Traditional banks, on the other hand, usually charge a monthly fee for account maintenance.

Traditional banks are regulated by the government. The new banks, on the other hand, either do not have, or have only partial banking licences, and are not or only partially regulated by the Government.

Digital banks offer a fully digitised banking experience, mainly through e-banking platforms. They are similar to new banks to some extent, but there are differences. For example, digital banks charge a monthly fee for account maintenance.

Benefits of the new bank for customers?

Lower costs: thanks to the complete digitisation of banks and low regulatory thresholds, even simple savings accounts can be offered free of charge.

Higher interest rates: the low-cost structure of the new banks allows them to offer attractive fixed deposit rates because the entire experience is digital.

Convenience: UI/UX design is at the heart of the new bank, attracting rapid customer adoption. At the same time, thanks to advanced IT and security features, the new bank is able to predict and stop any fraud in a timely manner.

Reduced processing time: Imagine applying for a loan and having it processed in minutes instead of days. The new bank was able to reduce processing times that would have required days of manual review by bank staff.

Advice on choosing a new bank

The new banks may offer great convenience due to their fully digitalised nature. However, the current fact is that they are under the supervision of the Reserve Bank of India (RBI) and their products and services are partially or completely unregulated.

Therefore, it is important to choose a new bank based on the expertise of its management team in dealing with banking and financial risks.

Here are five key points to consider before choosing the right new bank:

Understand your banking needs - The type of banking partner you choose depends on the complexity of your personal banking needs. Today, most digital banking apps offer the same features as a new bank, so it's important to understand what your bank offers before signing up for a new bank.

Insurance - Banking is a business built on trust and government regulation protects depositors from the risk of default through an insurance scheme. This insurance scheme ensures that the insurance company will pay depositors if the bank fails to repay their deposits. And new banks are not subject to the same rules. The best way to work with a new bank is to check whether they offer a private deposit insurance scheme to protect depositors.

You're comfortable with technology - New Bank is best suited for tech savvy people who want banking services at their fingertips. New Bank's app has a clean interface and an intuitive UI design that is easy to use.

You want to improve money management - in a world that pushes you to spend more and more, New Bank, with its ease of use, can help you design reward and goal-oriented systems. Such a programme can guide you to invest wisely and simply keep track of all unnecessary expenses, because money saved is money earned.

Account Management and Reconciliation - If you're a business owner or entrepreneur, you probably need more than one system to manage your finances. New Bank can consolidate them into one system and save time in decision making by providing business insights through its reports.

The Way Ahead

The low-cost internet and a cadre of tech-savvy young people are changing the way people think about banking. Here are some notable trends regarding this new type of banking:

Focusing on the domestic market, emerging fintech startups are offering unrivalled services across multiple regions in India and making an impact by driving financial inclusion for the masses. Neobanks are gradually transforming into full-featured banking organisations offering everything from account opening to travel credit card sales. Neobanks are getting into the instant messaging space; customers will be able to manage their accounts and cards not by installing a bank app but through their preferred instant messaging service. Many prominent new banks have partnered with social media companies such as Facebook and Google to provide world-class customer support through their apps.