NEO Banks Partnership with Fintech

Soniya Khanna

06 Jul, 2023

If you have followed the development in the fintech space, you would also have known about neo banks. They were popular in the European and US markets and now it has started making buzz in the Indian market as well.

What are Neo banks?

These type of banks operate exclusively online which means it doesn’t have any physical branch network. It offers digital services or mobile only services. The concept of neo bank originated in UK. RazorPayX, Yelo, Instant Pay are some of these banks in India.

Neo Bank across the globe

In case of digital banking, United Kingdom dominates the rest of the gang. The fact that common banking guidelines were issued for the entire European Union, gave them the edge in this space. This helped neo bank in UK to grow rapidly while being compliant with the regulations.

Digitization through collaboration

There has been an increasing shift towards digitization of banks all around the world. So much so that banks are partnering with fintech to explore new possibilities.

Some of the ways are mentioned below:

• Direct Investment

Various big banks have made direct investments in various neobanks and these investments are aimed at facilitating the digital transformation of partnered banks.

• Strategic Partnerships

In these collaborations new technologies as well as services made by neobanks are integrated into the banks’ applications.

• Mergers and Acquisitions

In recent period, the growth strategy of banks has evolved to acquisitions. As per a report on neo bank^[1], almost 1 in 3 banks as well as asset managers plan to buy Fintech Company in the next one year.

What is the need for such partnerships?

With the partnerships, customers and businesses shall have access to more personalized financial products and services, from transactions to payments, savings and insurance.

The reason why financial institutions are partnering with fintech is due to the following reasons:

• Access to new segments

Banks cannot open up physical branches in every other remote location. As more people opt for low value accounts, the returns would be highly less.

• New solutions for customers

Creation of innovative solutions through partnerships is a way to bring more regular and uniform revenue from existing customers.

• Collect, use and manage data

Using data is critical in banking in order to keep up with the competition. Banks are leveraging the expertise of fintech with a view to collect, use and manage customer data to create alternative risk modelling techniques.

• Boost customer engagement

With these partnerships, banks through digital tools gain a better understanding of how customers engage across the touchpoints.

Partnership for mutual growth

Neo banks have been partnering with fintech for some time now in order to extend their services to customers at lower cost. They have put their trust on such partnerships with a vision to build a service marketplace which revolves around banking operations.

The emergence of neo bank has reshaped the banking landscape by providing increased digital financial services. Here are a few:

• Demographic focussed platforms

There are neo bank that focuses on building niche products that cater to specific demographic segments.

• API platforms and ecosystem

With the emergence of Application Programming Interface banking providers, businesses can build as well as launch best in class financial products and provide enhanced user experience with ease. Most of the innovation in this is concentrated around payments and lending.

• Banking as a service

It exposes banking APIs and processes to third party developers. It is classified into 3 categories- API stores which would help in building better banking services for consumers and fintech, white labelled platforms and as a co-branding proposition to traditional banks.

Conclusion

Read our article:Neobanking in India: New trend in banking