The term "Neo banks" refers to banks that have no physical locations. Neo bank accounts can be opened from the comfort of one's own home, and they offer a variety of options and flexibility to its consumers.
Customers, particularly millennials, are moving away from traditional banks in favour of internet banking as financial technology becomes more popular. As a type of financial technology company, neo banks exist.
Customers benefit from their services because of the safety net provided by traditional banks. Some Neo Banks are able to provide greater interest rates due to their partnership with another bank. For example, Niyo has partnered with Equitas to offer a savings account with an interest rate of 7% per year.
Neo banks can be divided into two categories according on the services they provide: credit-based and savings-based.
Loans from the Neo Banks
Neo banks, which process applications swiftly and can disburse loans quickly, are an option for those in need of money. To do this, the Neo banks demand an online verification process that includes a photo ID, an Aadhaar number, and other appropriate papers. MoneyTap, for example, provides personal loans to salaried workers earning at least 30,000 a month. However, they demand a higher interest rate, starting at 13% and lasting no more than three years.
In order to make loans, neo banks work along with a bank or an NBFC. For example, MoneyTap has partnered with Apollo Finvest India, DM Finance, and HDB Financial Services, among other companies.
In order to get the loan swiftly, it is important to have a Neo bank savings account in order to do so.
Data protection is a major concern
Before granting you a loan, all of these Neo bank applications demand access to your phone's phone book, gallery, and other apps. As a result, when you apply for a loan, you put your private information at risk.
As a result, the RBI does not control Neo banks directly, but each Neo bank is always linked to a physical bank that is regulated by the central bank. RBI does not regulate Neo banks directly. Deposit Insurance and Credit Guarantee Corporation (DICGC) guarantees bank deposits up to a sum of 5 lakh for Neo Banks, too.
For Savings
Neo banks allow its customers to save money in addition to offering them loans. Savings-led Neo banks offer a variety of services, including prepaid and debit cards issued in conjunction with brick-and-mortar financial institutions. These Neo-banks keep in touch with their clients on a frequent basis. Customers' spending habits are tracked, and customised solutions are offered based on such data.
There are no branches of Neo Bank, a digital-only bank.
For example, Fi Money, which works with Federal Bank, recommends that you save up to ₹50-100 every time you use a restaurant delivery app to order. Similarly, there is a Neo Bank Jupiter Money with money management tools that allow you to save for the future. Interest is paid on the money as it accumulates, and the interest continues to accrue at the same time.
Experts believe that a Neo Bank account is not a suitable substitute for a traditional bank account. So, if you want to get a personal loan, you can go to a traditional bank instead of a Neo Bank.
And borrowers should be aware that the fintech companies running their Neo banks have access to their cell phone data.
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