Neo banks are the banks that are completely digital with no physical branches. One doesn’t need to go anywhere to open an account with a Neo bank, and they give a number of offerings and flexibility to their customers.
With financial technology becoming a buzzword, customers, especially millennials, are drifting away from physical banks towards online banking. Neo banks are a form of financial technology firms.
They offer services by tying up with traditional banks which give a safety shield to customers. Some Neo Banks offer interest at a higher rate because of their partner bank. For instance, Niyo tied up with Equitas to offer interest at the rate of 7 percent per annum on its savings account.
Primarily, there are two types of Neo banks based on the services they offer – credit driven and savings driven.
Loans from Neo Banks
One can borrow money from Neo banks which do fast processing of application and can disburse loans quickly. To do this, the Neo banks require online verification that requires photo ID, Aadhaar and other relevant documents online. For instance, MoneyTap offers personal loans to salaried employees with a minimum salary of ₹30,000 per month. However, the interest rate they charge is on the higher side starting at 13 percent for a maximum of three years.
Neo banks join hands with a bank or NBFC (non-banking financial institution) to give loans. For instance, MoneyTap has tied up with Apollo Finvest India, DM Finance and HDB Financial Services.
It is worth noting that if you have a savings account with a Neo bank then your usage will help you access the loan quickly.
One must be aware of the fact that all these Neo bank apps seek access to your phone book, gallery and other apps on your phone before they grant a loan to you. So, you compromise your personal data in the process of seeking loans.
As such Neo banks are not directly regulated by the banking regular – RBI, but each Neo bank, invariably, is linked to a physical bank that is regulated by the central bank. So, Neo Banks are also covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) that insures the bank deposits up to a sum of ₹5 lakh.
The experts don’t caution against seeking the facilities of Neo banks. “It is not unsafe to take a loan from Neo Bank because all of them have some tie up with a bank or NBFC. But it is surprising that so many millennials apply for loans from these fintech firms. Instead of seeking a loan from an app, why wouldn’t someone take a loan from the banks that made the existence of these Neo banks possible?” says Deepak Kumar Aggarwal, a Delhi-based Chartered Accountant and financial advisor.
Apart from granting loans, the Neo banks also enable users to maintain savings accounts. The services of savings led Neo banks range from giving prepaid and debit cards in collaboration with some brick and mortar banks. These Neo banks engage with customers regularly. They track the spending of customers and offer them smart solutions based on their spending habits.
For instance, Fi Money, which runs its operations in collaboration with Federal Bank, suggests you save ₹50-100 every time you place an order on a food delivery app. Likewise, there is another Neo Bank Jupiter Money that has money management tools that allows you to keep money aside for life's goals. The money gets accumulated separately and continues to earn interest at the same time.
The experts suggest that an account with a Neo Bank cannot be a perfect substitute for an account with a physical bank. So, to avail a personal loan, one can also approach a physical bank where you have an account instead of a Neo Bank.
And those who are taking loans from Neo banks must be aware of the fact that they share their mobile phone data with the fintech firms that run their Neo banks.