Neobanks: Leading the Way in Digital Banking Innovation

See what Banks and NBFCs can Pick Up from Digital Financiers for Better Digitalization

Neobanks are innovation powerhouses for customer satisfaction, which has helped transform global banking. Since everyone is going digital at an ever-accelerating pace, neobanks have a huge window for innovation in diverse fields. One major segment for expansion would consist of Gen-Z and exquisite niche consumer segments that have newer demands.

In India, neobanks are still tasked with having to carefully gauge changes in regulatory compliance for digital banking and are yet to unleash their wave of customer-centric products. To date, brick-and-mortar banks have the upper hand because their regulations are spelled out to the tee. Naturally, neobanks have no choice but to cater to the same segment that their counterparts have dominated for years.

As digitization intensifies, neobanks could get way ahead. Though still, the current scenario is a rare instance for industry leaders to be toe-to-toe and still get to learn a thing or two about innovating at a faster pace.

Neobanks v/s Digital Banks: Better Analysis of Data is the Tie-breaker

It’s no surprise that data plays the biggest role in tiebreakers for the bigger piece of the pie. The better existing data is understood; the better customer acquisition is possible. Ultimately, it worked out with a good marketing strategy, both players can enjoy the new markets of digital banking.

On the other hand, customer retention is a bit more complex. When it comes to brand loyalty and better customer relations, data needs to be looked at differently. A major question asked here is what data are banks allowed to capture and how can banks maximize insights.

Indian Neobanks’ priority is to proactively identify and build new products and services that customers want. Products backed by strong research and favoring regulations may get them to the door, but building platforms that genuinely enable new-age insights and risk supervision is a primary requirement.

For digital banks, offering customizations for a niche consumer base comes with the responsibility to better your services as you progress. Though, the question is similar – do our everyday banks have systems that will help them understand data cyclones brewing over new-age market segments?

New-age Analytics Level the Playing Field

Advanced MIS Functions with AI and ML Abilities

In India, one major hurdle for neobanks is newer regulations that have forced their offline counterparts to catch up in the Digital Sphere. RBI mandates for end-to-end report automation have given banks’ management the roadmaps to ramp up systems and make use of reports of superior quality.

Management Insights can now be sourced from regulatory compliance reports, in a major attempt by software providers to unify quality data for all-purpose reports.

Major business decisions including increasing customer centricity and transforming an outlook towards major assets are now possible with revamped analytics systems. In an attempt to strengthen systems, data lakes are being implemented through storage clouds for easy, seamless data processing and new AI and ML abilities.

While staying ahead in the tech-frenzy atmosphere, Neobanks needs to safely model analytics systems around current regulatory requirements and also account for future possibilities. Meanwhile, banks need to pay close attention to insights into customer behavior to continue to stay on top of the game.

Superiority in Credit Offerings for a Diverse Customer Base

Credit offerings are changing at an increasingly fast pace. Buy-now-pay-later models are being adopted by multiple online consumers and stores, and banks have been bound to create such provisions. In another such instance, a line of credit (LOC) is majorly favored by various MSME borrowers, and it is working really well as a credit solution. With new credit solutions becoming mainstream, banks are burdened with new tasks for comprehensive risk analysis.

Back in the day, banks could only pick up patterns inferred from first-party data, though now RBI has allowed the implementation of models that track early warning indicators from second-party and third-party sources. Scalable technology is required for accurate data and cutting-edge ML algorithms need to be in place to derive insights into lender behavior.

As neobanks enter the corporate sector, superiority in consumer behavior analytics will be the game-changer for both players. Currently, banks can look into warning indicators grouped under five logical ‘Parameters’ - Transactional, Financial, Non-Financial, External, and Statistical. Though, keeping a watch out for new trends and possibilities is the only way either one can improve.

The real differentiator

Banks can leapfrog technology adoption with emerging tech tools, for product development, digital connect for customer satisfaction resulting in their retention, and improve efficiency in internal operations as well as compliance and reporting. The reduced transaction may cost boosts up their bottom line. All these will enhance profitability and enable them more risk-averse.

Neobanks have technological advantages for customer acquisition with new products. They have to be ready for a higher risk appetite on scaling up their operations affecting their capacity. The main focus should always be on the development of systems with the stability of the banking system.

The real winner will be decided by the speed of their journey of digital transformation of Banks and risk adoption by neobanks.