Digital Banking: What are Neo-banks and how are they changing the banking industry?

Capital Market Course

Digital Banking is promptly growing as it provides rapid and safe money transactions. It stepped foot in India during the late 90s. Since then it has taken an enormous shape in the banking sector.

When the actions or works of traditional banks are executed through a modern electronic device then that is termed digital banking. It can be executed through a computer, laptop, or smartphone. Both bankers and customers prefer digital banking because it eliminates all the lengthy procedures.

The services of a digital bank can be used at any time as it is open 24/7. This branch of the banking sector has developed so much that many sub-fields have emerged from it. Neo-banks are one of the well-known sub-field of digital banking. 

To learn more about neo-banks, dive into this article!

What are Neo-banks?

Neo-banks are those banks that are operated completely online. This means no work is executed physically and they have no physical existence ie physical subsidiaries. It is mostly used by those people who are tech-savvy and do not carry traditional money with them. 

From money transfers to trading, everything can be executed through neo-banks. Currently, in India, the RBI has not yet directed the complete digitalisation of traditional banks. Hence neo-banks are still in their initial phase in India. However, traditional banks are collaborating with various finance providers so that they can provide their customers with the facilities of a neo-bank.

What are the various features of Neo-banks?

Neo-banks have multiple features that enhance the experience of their customers. Their smart features attract the young tech-savvy population as these actions can be performed through various electronic devices. These features have been elucidated below:


Neo-banks are well-known for providing both personal as well as business loans. Apart from this, certain underbanked communities also receive services and benefits from the neo-banks. This is done to reduce the gap between neo-banks and traditional banks. Loans from neo-banks are also helping growing ventures and individuals. 

Credit Cards

Credit cards of neo-banks are performing better than those of traditional banks. As they are providing new start-ups with alluring offers. Unlike the traditional banks, they are generally reluctant to do the same. 

There are instances when neo-banks have provided high-limit credit cards with no security to businesses. This is usually done by analysing the performance of that particular company. 

Savings Account

Opening a savings account at a traditional bank is a tedious procedure. People need to stand in queues and fill up various important papers and documents. However, neo-banks offer easy methods through which customers can easily open a savings account and can also issue a debit card for themselves. 

Types of Neo-banks

Furthermore, there are different kinds of neo-banks in the fintech industry. More about these banks have been vividly discussed below:

Full-stack digital banks

Licensed digital banks or full-stack digital banks have received all the requisite approval from traditional banks. They also set up boards for service selections. Full-stack digital banks perform works like issuing cheques and granting loans. 

Full-stack digital banks are economical and do not act as a burden for some traditional banks. However, in India, these banks are still not legal and no one can use them yet. 

Front-end banks

The next kind of neo-bank is the front-end bank. These banks do not possess any banking licenses and depend upon institutions that mainly deal with financial functions. The neo-banks acts like a partner of these institutions so that they can render various financial facilities to their customers. 

As these neo-banks do not have any banking licenses they have to rely on traditional physical banks for generating their balance sheets. 

Standalone digital banks

The next type of neo-bank is the standalone digital bank. These banks are also known as independent digital banks. In reality, these banks are just the digital version of any established traditional banks. 

Although the established traditional banks have their licenses they still need to create a digital license for their digital standalone banks. Licenses are given to those banks that have collected enough deposits. One of the most famous standalone digital banks is the YONO which has been established by the State Bank of India (SBI).

What are the benefits of the Neo-banks?

People are switching to neo-banks as it is providing them with various feasible benefits. These benefits are:

  • One of the biggest benefits of a neo-bank is that it can work on a low operating budget. As these banks’ existence is entirely digital therefore they do not require any infrastructure and maintenance expenses. Therefore, customers do not have to pay certain service charges and have to pay a low amount of interest. 
  • Unlike traditional banks, neo-banks function rapidly. They are accessible 24/7 hence money transactions can be executed at any time by the customers. Customer service of any neo-bank works rapidly and instantaneously as they are driven by AI.
  • A traditional bank might still use outdated technologies but neo-banks do not use them. These banks always use the latest technologies so they have high security. Therefore, neo-banks can easily safeguard the data of their customers.  


The future of neo-banks is quite bright as they are only going to grow rapidly. This will create more job opportunities for the younger population. Therefore, a career in fintech is quite alluring as it will offer high remuneration and other facilities. 

Imartcus Learning’s Advanced Management Programme in Financial Services and Capital Markets will boost your fintech career with IIT Lucknow. This course will help you acquire skills in financial management, FinTech, capital markets, financial valuation etc. Experienced faculty members of IIT Lucknow will assist you through the entire course. 

So, without any further delay, enrol yourself in this course.

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