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Neo Banking Vs Digital Banking

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Neo Banking Vs Digital Banking

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If someone asked you to differentiate Neo banking vs digital banking, you’d probably think that they’re the same. You’ll be surprised to know that they’re actually not.

Even though both Neobanks and Digital banks offer a similar range of services, they are two separate financial institutions. The difference between neo banking and digital banking, is that while Neobanks only operate online, digital banks have become an alternative to traditional banks and offer a similar range of services. Additionally, they support conventional banks that lack an internet presence by providing suitable digital services. 

Let’s understand this in detail.

What is digital banking?

When the phrase "digital banking" first appeared, it just denoted a bank's internet presence. Customers might use it to view account activity and balances and perhaps even pay bills. Today, the meaning of digital banking is substantially broader. The term "digital banking" now refers to all of the methods that customers can communicate with their banks online. This covers websites, chatbots, smartphone apps, and even social media. 

And it's not simply about making money transfers or checking account balances. It also has services, including loan applications, account opening, and personalized financial guidance. Digital banking is the term used to describe banking that is conducted entirely online. Online banking services are offered through "digital banking." It is obvious that the advantages of moving toward a more technologically advanced manner of doing things far outweigh the disadvantages. Similar to this, digital banking is a technology byproduct that strives to simplify life for bank customers. Here is how digital banking came with certain benefits: 

  • An old person who is sick of standing in line, working-class professionals who are swamped with work, or an ordinary person who does not want to go to the bank's branch to do a single errand may all perform banking tasks from their own homes, thanks to digital banking. Additionally, it provides convenience.
  • Speaking more specifically about the convenience provided, digital banking gives a user access to banking operations around-the-clock.
  • The excessive emphasis on paper in traditional banking was one of its main flaws. With the advent of digital banking, banking has gone paperless.

However, then came the neobanks. The basic difference between neo banking and digital banking is that Neobanks are entirely online with no physical locations. Additionally, they provide:

  • ‍A personalized online banking service
  • The use of AI in technology
  • They work continuously.
  • They are inexpensive

Neo banking vs digital banking

Here are some more pointers on understanding neo banking vs digital banking:

  • In comparison to digital banks, neobanks provide a more simplified and customer-focused service. They frequently have a lot of creative ideas. They provide things that traditional banking services simply do not provide, like in-app budget tools and real-time spending insights.
  • They are not governed by the same laws. This has potential for both good and bad. On the one hand, it enables neobanks to adapt more quickly and add new features. However, it also implies that their level of deposit insurance protection is diminished and other restrictions in terms of banking services.
  • Neobanks are entirely online-only financial institutions without any physical branches, and digital banking includes all of the ways that clients can engage with their banks through digital channels.

A major neo banking vs digital banking fact is that Neobanks are reshaping traditional banking systems by enhancing the banking experience via the use of Artificial Intelligence (AI) as well as other technologies. While traditional banks still are trying to keep up with the digital trend, digital banking makes banking much more accessible for both people and companies. Neobanks and digital banks are used much more frequently than traditional banks because of the rising adoption of technology.

Are neo-banking and digital banking safe?

If you have concerns about their security, it can be unsettling to entrust your money to a bank that does not have the conventional instruments in place to operate. The credibility and customer service of traditional banks, as well as the knowledge that you can call or visit a branch whenever you need to, all contribute to the public's faith in them. It's good to know that neobanks are subject to the same regulatory procedures as conventional banks. 

The truth is that traditional banks still rely on a lock and key while digital and neobanks have numerous levels of protection due to how far technology has come. Neobanking and digital banking have become extremely reliable, with little downtime, thanks to such technology. Artificial intelligence (AI) is used by neobanks in a variety of ways. For instance, they are utilizing it to detect fraud, provide financial advice, and personalize the user experience. Additionally, AI is being utilized to create new features like chatbots that may offer enhanced customer care.

The Bottom Line

While you look at neo banking vs digital banking to understand how the two work, note that neobanks globally are being driven by features and services like accessibility, cost-effective integration of numerous banking and financial capabilities, and personalization. The way forward is that FinTechs are developing specialized solutions that cater to the demands of thin-file MSMEs and blue-collar workers. 

Neobanking can be a continuation of efforts made to address issues with financial inclusion and the bundling of banking services with other financial services. For instance, services like bank account opening accounts for immigrants could be made easier through new onboarding processes that do not rely on conventional identification documents. Neobanks could grow by gradually introducing new functions and services after starting off with limited aims.

Although digital and neobanks are gaining ground, the majority have not yet demonstrated sustained profitability. Despite this, they have the potential to significantly alter the banking and financial services industries, and the key to making them profitable would be to persuade traditional banks to invest in cutting-edge technology and reengineer processes to offer seamless and quick customer experiences. 

It remains to be seen if the market is large enough for neobanks to drive growth and fairly in the face of increasing competition from traditional banks, modern FinTechs, technology companies, and non-banking entrants. The primary determinants of neobanks' success will be how they handle significant obstacles in terms of regulation and adherence, cyber and data security, smooth API integration, and development of products and services.

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