The banking industry has taken a different shape with the introduction of neobanks. Evidently, neobanks have improved the banking experience with technology. However, they are still growing and have often been considered recent traditional banks.
But are they really traditional banks? If not, then what exactly are they?
What Are Neobanks?
Neobanks, also known as digital banks or challenger banks, are financial organisations that conduct financial services digitally, quickly, seamlessly and at low costs. They use technology to facilitate their products and services and make financial activities easier. While they operate remotely, they collaborate with traditional banks to provide their products and services.
What Are Traditional Banks?
Traditional banks are financial institutions that interact with their customers physically and digitally. They have long been in the banking world and operate in physical branches across several locations. Many provide essential services like automated teller machines for cash withdrawals, deposits, and transfers.
Neobanks Vs Traditional Banks
Neobanks and traditional banks are like the two sides of a coin. While they are related, they have their differences. What are these differences?
1. Banking Licence
While all financial institutions are regulated, not all of them have banking licences. Unlike traditional banks, most neobanks do not have banking licences. For the ones that do, their licences may be specialised, partial, or full-ranged. For this reason, neobanks cannot exactly be called banks.
However, traditional banks, on the other hand, are licensed to operate as standard banks. This makes them have more restrictions, limitations, and services.
2. Physical Presence
Neobanks do not have physical offices as traditional banks because they are built on the concept of resource management. They avoid spending on brick-and-mortar and rather on talents and releasing more products.
On the other hand, traditional banks have physical offices scattered across different regions. Their physical presence helps them build trust and quality relationships with their customers.
3. Range Of Services
Generally, traditional banks offer a large variety of services. Their services span beyond remittance to providing physical debit and credit cards, chequebooks, ATMs, etc. Eight out of ten traditional banks provide similar wide-ranged services.
But neobanks offer fewer services, which are not always the same. This means that some offer more (or differently) than others.
But one fact is that although commercial banks have more offers, neobanks provide many of these services on a better scale.
4. Accessibility
Product and service accessibility are important for consumers in every business. Neobank services are more accessible to users than commercial banks. Using Kyshi as an example, it is more convenient to create an account with Kyshi than with a brick-and-mortar bank. Opening a Kyshi account takes a few minutes in the comfort of your home or office, unlike a common bank that requires you to fill out forms.
Also, you can quickly take loans from neobanks because they are not strict about checking credit histories. But for banks, aside from scrutinising your credit history, other processes are attached.
5. Affordability
Neobanks are budget-friendly in every aspect, compared to traditional banks. They do not charge any fee for opening an account, hardly take fees for maintenance, and allow you withdraw all your funds without any minimum balance. They also have higher interest rates on savings and no hidden charges.
However, traditional banks are more expensive. They often charge fees for almost every activity including maintenance. Sometimes, they do not disclose some of their charges to new customers.
6. Consumer Persona
While neobanks and commercial banks widely target the same customers, they narrowly attract different customer segments. It is agreeable to say that despite the widespread adoption of technology, a significant population are still not tech-savvy.
These sets of people often patronise traditional banks as they prefer to interact physically with their cash and service providers.
But neobanks primarily attract the tech savvy population. Thus traditional banks have a wider reach by providing services to the tech savvy and non-tech savvy population.
Neobanks Vs Traditional Banks– Which Is Better?
Neobanks and traditional banks are beneficial to everyone who needs financial services. However, neobanks appeal more to the tech-inclined population compared to traditional banks; while commercial banks rather provide more services compared to neobanks.
But in essence, neobanks are more convenient and affordable. Ultimately, your choice of bank type may depend on your familiarity with technology, preferred customer service medium, and the kind of service you need.
FAQs
How Neobanks Are Challenging Traditional Banks?
Neobanks are changing the banking narrative through Artificial Intelligence and other technologies.
What Are The Advantages Of Neobanks?
Neobanks are readily accessible with low operational costs. You can also get higher interest rates on neobanks.
Are Traditional Banks Any Better?
Traditional banks provide physical customer-business interaction and are able to reach a wider audience.