The document discusses neo banks, which are digital-only banks that operate without physical branches. Some key points: - Neo banks first emerged between 2013-2015 and provide digital and mobile-first financial services like payments, money transfers, and cash management. - They work by partnering with licensed banks to provide regulated banking services through their digital platforms. - While neo banks offer a modernized customer experience, traditional banks still have a physical presence advantage. - The global neo banking market has grown exponentially in recent years and is projected to continue strong growth, though challenges remain around business models, regulations, and trust for some customers.

1. Neo Banks
Friday, 28/04/2023

2. Table of Contents
Introduction
Landscape
Methodology
Research Results
Conclusion & Discussions
I
II
III
IV
V
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6
9
10
13
Page

3. Introduction
I
The term neo-banking was first coined in
2017 to describe tech-based financial
service providers that were challenging
traditional banks. The concept of neo-
banking itself, however, emerged years
ago, between 2013-15. Some of the first
players started up in the UK and Germany,
including Monzo, Revolut, N26 and Atom
Bank. In India, we at Niyo Solutions were
the first fintech to pursue neo-banking
back in 2016
3

4. WHAT IS NEO BANK
As the financial landscape
shifts towards customer
experience and satisfaction, a
gap has been created in what
traditional banks expect. And,
Neo banking is trying to fill
that gap.
A bank without a branch is
a kind of digital bank
Instead of being physically
present at a particular
place, neo banking is
completely online. This is a
broad umbrella of financial
service providers who
appeal to today's tech-
savvy customers.
Neo bank can be called a
Fintech firm that provides
digital and mobile-first
financial solution payments
and money transfers, cash
termination payments, and
more. Neo banks do not
have their bank licenses but
rely on bank partners to
provide banking licensed
services.

5. HOW DOES IT WORK ?
Since there is no physical location and they are
completely online, the customer's payment is
sucked in by a significant amount. As Neo banks
are customer-centric, they provide personalized
services to their customers that are expelled
through technology.
Data-driven decisions drive a bank's decision-
making process. As their platforms are also
modernized, it becomes easier for them to collect
and analvze data and understand how their
customers use it in the Neo banking ecosystem.
Based on these observations, they create customer
cooperative societies based on their activities
rather than just having one or two data points.

6. CURRENT
LANDSCAPE
Over the past 5 years, the global neo-banking market has witnessed exponential growth in
terms of both customer base and size of the overall market. It is expected that the market will
continue to grow by at least 25-30% in the next 5 years.
With all its unique advantages, both to the fintechs that engage in neo-banking and the
customers it serves, neo-banking shows incredible promise in the near future.
Based on current projections, neo-banking is expected to become mainstream within the next
few years, with more and more consumers and small businesses overcoming their
apprehensions and adopting this new wave of revolution in the world of banking and finance.
Whether or not it overtakes traditional banking is something only time will tell.

7. NEO Banks vs
Traditional Banks
Traditional banks like HDFC, ICICI, Kotak, Axis, etc., have a wide physical presence with
physical ATM outlets and bank branches. In addition to this, these traditional banks also
offer digital banking or net banking services. This gives them a minor edge over the neo
banks with an only online presence.
The customer base of neo banks is less compared to that of the traditional banks. Neo
banks have a long way to go before they take over the scale of business of conventional
banks.
Traditional banks have deep pockets and significant funds compared to neo banks, which
neo banks lack since most of them are still in the nascent stage in India.

8. NEO VS DIGITAL BANKS
Digital banks often exist as the
online subsidiaries of established
banking and financial institutions.
They may be backed by larger
financial institutions and have a few
physical branches
On the other hand, neo banks
exclusively operate online and
have no offline branches.

9. NEO VS PAYMENTS BANKS
Payments banks come under the
ambit of RBI and provide all banking
services to customers except issuing
credit cards and extending loans.
This makes payments banks virtually
free of credit risk
Neo banks on the other hand
offer both credit cards and loan
services which increases their
exposure to credit linked risk.

10. Advantages of
NEO Bank
Customer Experience Automated Services
Insights
Transparency
01 02
03 04
Neobanks don’t offer novel banking services. Their services are
similar to those of traditional banks, but with a hyper-
enhanced and personalised customer experience. Neobanks
have significantly leaner business models and superior
technologies at their disposal compared to traditional banks,
providing ease and efficacy in services.
Apart from providing primary banking services, neobanks offer
automated and near real-time accounting and reconciliation
services for bookkeeping, balance sheets, profit and loss
statements and taxation services such as GST-compliant
invoicing, tax payments record keeping and reconciliation, on
mobile platforms for affordable costs..
Neobanks are transparent and strive to provide real-time
notifications and explanations of any charges and penalties
incurred by the customer.
Most neobanks provide dashboard solutions with highly
enhanced interfaces and easy to understand and valuable
insights for services such as payments, payables and
receivables, and bank statements.

11. How they Earn
Neo Banks have access to
our spending profile. They
are leveraging this data by
offering lending / BNPL
(Buy now pay later)
services. They borrow from
the partner bank & lend it
to us. The difference
between these rates is
their income.
Interest Income
This includes subscription
fees, cross selling products
like insurance, wealth
management etc.
Fee Based Income
They levy interchange
fee on credit or debit
card transactions using
EPOS machines. However
this revenue stream was
impacted due to the
restrictions of MDR by the
RBI.
Interchange Income

13. Neo Banks in India
Inspite of the regulatory hurdles in India, this space
had seen a huge interest with multiple players
entering the market. As of now, there are 12 active
Neo Banks in India & few more are in pipeline. They
have cumulatively raised ~$250 Mn in funding till
date.
They are basically targeting two segments – Retail &
SME. Every Neo Bank usually starts with an anchor
product (Credit card, Forex, Savings account, Payroll
etc) that is focused on one of the target segments.

14. If you are tech savvy & looking for new age banking
experience, you must surely check them out. They
offer unique solutions when compared to the
traditional one fit all products. You can get the best of
multiple banks on single platform.
Should we Open ??
Everyone is in customer acquisition mode & a lot
running on VC money. They are going to be
aggressive in marketing, cash backs etc for the next
few years.
The account will be created with the underlying bank.
This will ensure that you are eligible for an insurance
of Rs 5 lakh as per DICGC guidelines.

16. Challenges
Challenge 1 Challenge 2
Challenge 3 Challenge 4
01 02
03 04
Yelo, which was focused on Gig workers had shutdown
its operations in July 2021. Funded by Matrix Partners,
Better capital etc, the company failed to figure out a
business model & monetise their services. Identifying the
target segment & designing a sustainable product is the
most critical aspect of a Neo Bank.
Unlike the west, Neo Banks in India continue to
depend on the partner banks for their offerings. They
are forced to design their products in alignment with
the underlying bank.
Niyo initially partnered with IDFC First Bank &
launched the 7% savings account. However for some
reason, IDFC First Bank withdrew the partnership with
Niyo. They later went ahead with Equitas to offer the
same product at 7%. This uncertainty will dampener
new product launches by the Neo Banks.
Neo Banks has to establish the trust among the
depositors. Many still prefer a physical presence of
their bank. Semi urban & rural India will be the
toughest market for them to crack. Having said that,
the urban, millennial & Gen Z crowd itself offers them
a multi decade opportunity.

17. Good connection in
business
NEO Banks are not Banks
01
02
03
04
05
06
Might get into legal trouble
NEO Banks are Fintechs
Banking through mobile only
No Physical Presence
Offer Limited Products

18. Regulatory Consideration
Traditional banks like HDFC, ICICI, Kotak, Axis, etc., have a wide physical presence with
physical ATM outlets and bank branches. In addition to this, these traditional banks also
offer digital banking or net banking services. This gives them a minor edge over the neo
banks with an only online presence.
In India, virtual banking licences are still not granted, though there are foreign national banks offering digital-
only products through their Indian subsidiaries. The Reserve Bank of India (RBI) remains stern in prioritising
banks’ physical presence, and lately reinforced the requirement for digital banking service providers to have
some physical presence12.
Traditional banks like HDFC, ICICI, Kotak, Axis, etc., have a wide physical presence with
physical ATM outlets and bank branches. In addition to this, these traditional banks also
offer digital banking or net banking services. This gives them a minor edge over the neo
banks with an only online presence.
The significance of brick-and-mortar bank branches is to serve customers and redress their disputes and
grievances in person. In its 2014 Guidelines for Licensing of Payments Banks, the RBI had highlighted that it
does not see payment banks becoming '"virtual" or branchless banks.13
Traditional banks like HDFC, ICICI, Kotak, Axis, etc., have a wide physical presence with
physical ATM outlets and bank branches. In addition to this, these traditional banks also
offer digital banking or net banking services. This gives them a minor edge over the neo
banks with an only online presence.
Presently, neobanks in India are addressing the regulatory predicament by outsourcing their banking
responsibilities to those with licences, creating strategic partnerships with traditional banks and providing
amplified services on behalf of existing ones. This model is already being used worldwide by some of the
biggest names in neobanking.

19. In this gilded age of technology, our lives are becoming
increasingly digital- the way we order food, apply for a job or
do financial transactions. In this accelerated digital first era,
people want to save their time by visiting a bank or waiting
in a queue.
Technological disruptions have spawned paradigm shaking
solutions like fintech, insurtech and regtech. The latest
technological disruption in the banking sector is neobanks.
Exclusively digital banks that operate online without any
brick-and-mortar branch, neobanks are being heralded as
the future of banking.
Is NEO Bank The Future

20. THANK
YOU.