Neobanks

Niti Aayog has proposed setting up ‘full-stack digital banks’ in India on recommendation of an RBI working group to regulate digital banking.

Suggestions cover the new wave of neobank fintechs which work with partner banks and serve as a technology layer for customer acquisition and banking activities for those banks.

About Neobanks

• A neobank is a kind of digital bank without any branches. Rather than being physically present at a specific location, neobanking is entirely online.
• These are financial institutions that give customers a cheaper alternative to traditional banks.
• They leverage technology and artificial intelligence to offer personalised services to customers while minimising operating costs.
• In India, these firms don't have a bank licence of their own but rely on bank partners to offer licensed services because the Reserve Bank of India (RBI) doesn’t allow banks to be 100% digital yet (though some foreign banks offer digital-only products through their local units.)

Advantages of Neobanks over Traditional Banks

• They provide enhanced customer experience with a hyper-enhanced and personalised customer experience using superior technologies such as artificial intelligence (AI) and machine learning (ML).
• Banks use near real-time accounting and reconciliation services for bookkeeping, balance sheets, profit and loss statements and taxation services such as GST-compliant invoicing, etc. improving the efficiency of Banks.