USD INR ₹ 84.00
GBP INR ₹ 102.80
CAD INR ₹ 60.64
Articles

The Rise Of Neobanks & Disruption Of The Financial Industry

Updated on July 08, 2021 09:20 am
Finance icons with a speedy background

Neobanks is the current buzzword in the FinTech (financial technology) ecosystem and is often considered as the digital disruptor in BFSI (banking and financial services industry).

This new breed of digital-only banks, mobile-only banks are posing new challenges to brick and mortar-based traditional banks.

Neobanks such as Monzo, Revolut, N26, Onjuno are challenging the old business model through feature-rich products and services, low cost, ease of use, and seamless online customer experience.

So What Exactly Is A Neobank? And Should You Switch To A Neobank For A Superior Banking Experience?

What Is A Neobank?

Neobanks, sometimes referred to as challenger banks, are fintech service providers that offer mobile and online banking with a focus on enhanced user experience, easy accessibility, and low or no-fee services. Neobanks are 100% digital and have no physical branches.

The moniker "challenger bank" was popularized in the U.K to refer to the various fintech banking startups that cropped up in the aftermath of the 2007-2009 financial crisis. These fintech firms are generally known as Neobanks in the U.S.

Since they challenge the traditional banks crippled with outdated infrastructure and legal systems with more customer-centric banking services and better convenience, the term 'challenger bank' is quite apt.

https://lh5.googleusercontent.com/mt_jl-3R9bWvddCmVx582DfTvXdDpKbm-z_0qAcBKhkuPU9p0Pkonvf5TNbuQkPREVRLEUwNAJepSDNtnDrayQGHR0g4eJXMTpBehQxps4DecstHXt0cuRwuYMjOIjs7yWeer-N5

How Does A Neobank Work?

As there are no physical branches, it operates mainly through a mobile application & digital or online platforms.

The app and website as the primary contact point of the customers is more feature-rich and more efficient than other ordinary banking apps.

They also tend to be faster and transparent than the big banks. This lets users have greater control over their money management.

Neobanks is powered by a data-driven decision-making process. These banks collect and analyze data, recognize patterns and trends to understand the behavior of the customers to come out with predictions or results that match consumer needs. They are able to provide highly customized and personalized services.

Neobanks offer a wide range of financial services including:

  • Checking and Savings Accounts
  • Payments and Money Transfers
  • Loans for individuals and companies
  • Credit and Debit Cards
  • Access to a wide network of ATMs domestically and internationally
  • Other services such as budgeting among others

What sets Neobanks apart from traditional banks are the innovative features and simplified processes including account opening in minutes, free debit cards, instant payments, lower prices, cryptocurrencies, peer-2-peer transfer, mobile deposits, mobile-budgeting tools, user-friendly interfaces, and more.

Types Of Neobanks

https://lh5.googleusercontent.com/iWojmQUIhtERq5En6lU_raxMKYu7mygS2PuGOuE-GKzaaueoOSXrG8K4dvA-kAc4NIC8aLZzAaNlIFHSAIlS5LLlM4x3L5NBpg1e_ZHbu6EvBXTu8gUPzSTygjnUWUmuRpidwpI2

Neobanks can have different operating models and are categorized into three main types:

  • Non-licensed Neobanks: They don't have a bank license of their own but are partnered with a traditional bank to provide banking services. These fintech firms utilize a wrapper around their partner bank's products and services. Example: Revolut, Chime
  • The second type is when traditional banks launch their digital-only initiatives which function as a Neobank
  • Licensed Neobanks: This third type has a digital banking license. They only exist in countries that allow stand-alone digital entities. Example: Monzo, N26, Sterling Bank

How Do Neobanks Make Money?

Neobanks' business model is different from the traditional banking institutions. A major chunk of their revenue comes from interchange fees paid by merchants when customers purchase goods and services using their debit cards. The interchange percentages can go up to seven times higher than those charged by banks.

Other strategies include freemium pricing strategies, multi-tiered subscriptions, and targeting specific niches. For example, OnJuno, a Neobank, is aimed at Asian Americans. OnJuno is known for offering an attractive saving rate of 2.15%. The OnJuno founders believe that it will serve the diaspora community in the U.S (typically South Asians and East Asians) which are numbered around 20 million, earning a higher average salary of approximately $50,000 per year, more likely to save plus are tech-savvy. Also, OnJuno is located in India which means costs are lower.

Global Market Size Of Neobanks

The neobanking sector was valued at $34.77 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 47.7% from 2021 to 2028 as per a market analysis report by Grand View Research.

https://lh4.googleusercontent.com/bnRsGMzgnqc55eRW7V71T6UB37LznSlA0VclCWww-U9vGsInZFIl61A79-c1o_ehYvij-rWu_sLK5w1iwYCKs5ySOKg3gAUYj8MWZEYDWgPOeT0ztA5Ek8sn2tc-fEoxh9yK6UK0

Neobanks are rapidly gaining popularity and have seen tremendous growth over the past few years, partly because of the increase in investments within the Fintech sector. According to a 2020 report by MEDICI Global, since 2018, a total of $5.627 billion has been invested, and in 2019, a record-breaking $4.361 billion have been poured into Neobanks.

Pitchbook, the PE/VC (Private Equity/ Venture Capital) data provider estimates that Neobanks will have 60 million customers in North America and Europe in 2020, and by 2024, it will reach over 145 million.

In the U.S., Chime is valued at $14.5 billion, becoming the most valuable U.S. consumer fintech with 12 million users.

What Are The Advantages Of Neobanks?

  • Convenience

With Neobanks, you have access to banking services at the convenience of your smartphone. Account opening is hassle-free and is done in minutes with minimal data requirements. Their added innovative features also allow you to manage your finances efficiently.

  • Seamless International Transactions

There is no differentiating line between national and international transactions with Neobanks. Unlike traditional banks, you don't need to upgrade your debit/credit card to transact internationally. Also, you get to save money on the cost of exchange rate on international transfers or purchases. For instance, Revolut doesn't charge any fees for currency exchange and their account accepts more than 100 different currencies.

However, it is worth noting that international money transfer function is not supported by most of the Neobanks as of now. Online money transfer companies offer the fastest and cheapest way to send money internationally.

International money transfer companies or cross-border payments service providers such as Remitly, Wise, Azimo, etc are integrating traditional banking services to their core services.

  • Low-Cost

Since Neobanks operates digitally, there are no operational and labor costs of running physical branches. This affords them to charge little or no fees for basic services such as free ATM withdrawals. They are much more cost-effective due to fewer regulations and no credit risks.

  • Superior Customer Experience

User-friendliness is a priority for Neobanks. Their apps are highly responsive, clean, and crisp, and well-designed to cater to the needs of customers. The extremely user-friendly interface is a major plus point.

  • Advanced Security Features

Neobanks are safe as they still have to abide by the regulators. They have some of the latest security features such as biometric verification, 2FA (2-factor authorization), RBAC (Role-Based Access Control), modern encryption technology among other security measures.

  • Better Reporting

NeoBanks provide better reporting to customers on their accounts & finances helping them plan and manage their money more efficiently



Should You Switch To Neobanks?

They are relatively new to the financial market, have limited services, and have not had the time to come up with products and services you will get from traditional banks.

Traditional banks are stepping up to the challenges, investing in new technologies, and financial tools to stay relevant in the current scenario. In addition, people have established trust with incumbent banking institutions despite the slow and outdated processes. Potential customers may be hesitant to adopt it. 

Since they lack brick-and-mortar branches, there is no in-person assistance when you are having difficulties with account-related issues. Neobanks may appeal to people who are tech-savvy and who grew up with internet access for almost everything.

Bottom Line

The pandemic has been a catalyst for the digital transformation in the banking sector. Having said that, a lot remains to be seen when it comes to Neobanks. While traditional banks have largely preserved their position, this may be changing as challenger banks are gaining traction.

On a global scale, the growth of Neobanks is an upward trajectory. Thanks to their attractive value propositions such as low rates, personal finance management features, and ease of use, Neobanks will continue to attract customers and investors.

 12491 views
Rate article:
(4.8)
 
 
Money Transfer FAQ's
Related Articles
Insurance Risks
Risks That Travel Insurance Can Help Protect (2024)

When planning for an upcoming trip, deciding whether to invest in travel insurance is a significant choice that may be in your best interest not to overlook. Travel insurance serves as a financial safety net, protecting you from a myriad of potential risks during your journeys. As you begin your research, you will notice there are two types of travel insurance: trip insurance and travel medical insurance–also known as visitors insurance. It can be very confusing, we know. But don’t worry. In this guide, we'll delve into the advantages of travel insurance, clarify the distinctions between trip and travel insurance, and provide clarity and insight into its often-overlooked perks.How Important is Travel Insurance?Travel insurance works as a shield against the various financial risks associated with traveling. Whether it's a sudden illness, a missed flight, or lost baggage, having the right travel insurance can alleviate the financial burdens that may arise during your trip.What is the Difference Between Tip Insurance and Visitors Insurance?Long story short, the difference is simple, think of trip insurance as insurance for your trip itself while travel medical insurance–aka visitors insurance–serves as insurance for you while you are on the trip. While both types of insurance offer protection during travel, their primary purposes differ. Trip insurance safeguards your investment in the cost of your trip, while travel medical insurance prioritizes your health and well-being during the journey. Please note that only U.S. residents are eligible to purchase trip insurance, and coverage extends to both domestic and international travel.Exploring the Benefits of Travel InsuranceWhile common risks like trip cancellations and medical emergencies are well-known, there are several benefits that travel insurance offers which many don’t even know about, providing a broader safety net for travelers. Let's unravel just some of these often-overlooked advantages. Benefits of Trip Insurance1. Coverage Beyond Trip CancellationsTrip cancellations or interruptions are inevitable. Trip insurance, with its Trip Cancellation coverage, acts as a safeguard for your invested time and money. It can refund 100% of your trip expenses for covered reasons, including illness or death of you, a family member, or a travel companion, extreme weather, or terrorist attacks.Trip cancellations are a common concern, but travel insurance extends its coverage beyond this. It safeguards your prepaid and non-refundable trip expenses in case of unavoidable circumstances.2. Protection Against Flight DelaysFlight delays or missed connections can disrupt your travel plans. Trip insurance steps in to cover financial losses incurred due to delays caused by factors beyond your control, including extreme weather, natural disasters, plane breakdowns, or accidents on the way to the airport.3. Safeguarding Your BelongingsLost, damaged, or stolen baggage can add stress to your travel experience. Trip insurance offers coverage for delayed baggage, allowing you to claim expenses for essential items after a waiting period. In case of permanent loss or damage, reimbursement is provided to replace the lost items.4. Addressing Unconventional RisksFor situations not covered by standard plans, such as unconventional trip cancellations, opting for a "Cancel for Any Reason" insurance plan provides flexibility. Though relatively more expensive, this upgrade offers reimbursement for refundable trip costs and specific non-refundable deposits.You can also see a more detailed list of what can be covered by your trip insurance. Benefits of Travel Medical Insurance1. Comprehensive Medical CoverageTravel medical insurance largely serves to cover unexpected medical expenses during your journey. This includes reimbursement for medical treatments, ambulance services, and hospital charges in case of illness or injury. This aspect is particularly beneficial for elderly parents traveling to the U.S.2. Emergency EvacuationIn the case that those who are covered by the insurance need emergency medical evacuation some travel medical plans help cover the evacuation. Without this coverage, should you need to be airlifted or evacuated, you could be facing a cost upwards of ten thousand dollars.3. Emergency Medical ReunionIn the unfortunate case that you face a major medical emergency during your travels, travel medical insurance can cover the transportation of your loved ones from back home to be there with you during your hospitalization. 4. Trip InterruptionIf you have to cut your trip short, some travel medical insurance plans would cover their stated amount for the non-refundable, unused travel expenses that canceling your trip halfway would incur. Make sure you read the details of the plan you are planning to purchase thoroughly to see the extent of coverage if unexpected interruption is something you are concerned about. You can also see a more detailed list of what can be covered by your visitors insurance. Choosing the Right Travel InsuranceIt's crucial to recognize that different insurance providers offer varied coverage plans. Factors like non-refundability, traveler's age, pre-existing conditions, the value of luggage, and existing coverage from health insurance, life insurance, renters' insurance, or credit cards play a role in determining the best travel insurance plan.If you are someone who travels frequently or are purchasing travel insurance plans for parents who plan to make the same trip often, we also suggest looking for a travel insurance plan with easy renewal. Do not worry, most plans today have a very easy renewal system so you can travel again and again with no hassle. Who Should Opt for Travel Insurance?Trip Insurance: Opt for travel insurance if you're concerned about trip cancellations, interruptions, or non-medical incidents. It's ideal for travelers who have invested significant sums in their trip and want financial protection against unforeseen events.Travel Insurance: Choose travel medical insurance if your primary concern is health-related emergencies during your trip. It's essential for travelers who want comprehensive coverage for medical expenses abroad, ensuring access to quality healthcare without worrying about exorbitant costs.Visitors insurance is also the best option for those looking to purchase travel insurance for their parents visiting or traveling.  Related Article: Visitor Insurance for Parents Visiting USAConclusion: Empowering Your TravelsIn conclusion, travel insurance is not merely a safety net; it's a comprehensive companion that grants peace of mind during your journeys. As you plan your next adventure, take the time to understand the nuances of travel insurance, evaluate your options, and ensure you have the best travel insurance plan tailored to your specific needs.__FAQs: Demystifying Travel Insurance FearsWhat does travel insurance cover?Travel insurance typically covers a range of risks, including trip cancellations, medical emergencies, delayed or lost baggage, flight cancellations, and certain unexpected incidents.Does my health insurance cover international travel?Most health insurance policies have limited or no coverage for international travel. Travel medical insurance is specifically designed to address the unique risks associated with traveling abroad.Does travel insurance cover illnesses?Yes, visitors' insurance often covers medical expenses incurred due to new illnesses during your trip. This includes reimbursement for medical treatments, ambulance services, and hospital charges.Does travel insurance cover flight cancellations?Yes, trip insurance typically covers flight cancellations due to reasons such as illness, extreme weather, or other unforeseen circumstances. Reimbursement for prepaid and non-refundable trip expenses is common.Does travel insurance cover COVID-19?Many travel insurance plans provide coverage for COVID-19-related expenses, including medical treatments and trip cancellations. However, coverage details may vary, so it's essential to review your policy.What should travel insurance cover?It depends on whether you opt for travel medical insurance or trip insurance. Ideally, trip insurance should cover delayed or lost baggage, trip cancellations, etc. While travel medical insurance should cover a broad spectrum of medical risks, including medical emergencies, unexpected incidents, a necessary visit to urgent care, etc.. The coverage should align with your specific travel needs and potential risks.Does travel insurance cover hurricanes?Yes, trip insurance often covers trip cancellations, interruptions, or delays caused by hurricanes or other natural disasters. It's essential to check the policy details for specific coverage related to natural calamities.Does travel insurance cover rental cars?Travel insurance may offer coverage for rental cars, typically covering expenses related to theft or damage to the rented vehicle. It's advisable to check the specific coverage details in your travel insurance policy.Does insurance cover travel vaccines?Travel insurance usually does not cover the cost of travel vaccines. This expense is often considered a preventive measure and falls outside the scope of typical travel insurance coverage.How easy is it to renew visitor's insurance?Renewing visitor's insurance is generally a straightforward process. Opting for policies that allow easy renewal is advisable, as it saves time and ensures continuous coverage.

Understanding USD to PHP
Understanding USD to PHP Exchange Rates in 2024

For many immigrants or individuals supporting their families in the Philippines, understanding the fluctuations in USD to PHP exchange rates is very tricky. Navigating the intricacies of these rates involves examining a spectrum of economic, political, and social factors.CompareRemit is here to make life easier for you, so you can make the best decision with little to no hassle on your part. In this guide, we'll unravel the complexities surrounding USD to PHP exchange rates, providing valuable insights to empower you in making informed decisions for your money transfers.​​Interest Rates: The Currency Tug-of-WarOne of the primary factors that influence exchange rates is  interest rates. When the U.S. Federal Reserve adjusts interest rates, it sends ripples through the currency market. Generally, higher interest rates attract foreign investment, strengthening the USD against the PHP. For individuals, keeping an eye on interest rate differentials between the U.S. and the Philippines can offer insights into potential shifts in exchange rates.Inflation: The Balancing ActInflation, the rise in the price of goods and services, plays a pivotal role in currency valuation. Countries experiencing lower inflation rates often witness an appreciation in their currency. Comparing inflation rates between the U.S. and the Philippines allows you to gauge the potential strength of the USD. A lower inflation rate in the U.S. compared to the Philippines may contribute to a stronger USD.Government Policies: Shaping Economic StabilityGovernment decisions and economic policies, both domestic and international, have large impacts on exchange rates. Policies promoting economic stability, prudent fiscal management, and sound monetary measures contribute to a stronger currency. Staying informed about the policies of both the U.S. and the Philippines will allow you to gain an understanding of the economic health and help predict dips and rises in exchange rates. Trade Balances: A Global PerspectiveThe dynamics of global trade, including exports and imports, definitely impact currency values. A country with a trade surplus, exporting more than it imports, may see a stronger currency. It might be very tedious to stay up to date with trade imbalances between the U.S. and the Philippines, but doing so can serve as an indicator of potential exchange rate movements.Historical Data: Patterns and PredictionsAnalyzing historical USD to PHP exchange rate trends can reveal patterns and provide insights. While past performance doesn't guarantee future results, understanding how rates responded to similar economic, political, or social events can guide your decisions. Historical data offers a valuable tool for predicting potential movements in exchange rates.Practical Tips for Informed Money TransfersStay Informed: Regularly follow financial news and updates from both the U.S. and the Philippines to understand the broader economic context. Regularly read our blogs to stay up to date with all the major money transfer news. Utilize Reliable Tools: Use CompareRemit’s online comparison tool and email alerts to track real-time exchange rates, ensuring you get the best value for your money transfers.Seek Professional Advice: Consulting financial experts or using professional services can provide personalized insights tailored to your specific situation, enhancing your decision-making process.In conclusion, comprehending the factors influencing USD to PHP exchange rates empowers you to make informed decisions when sending money to the Philippines. By staying attuned to economic indicators, leveraging historical data, and adopting a proactive approach, you optimize your money transfers, securing a more stable financial future for your loved ones.

NRE Bank Account
Best NRE Accounts for NRIs Across the Globe

Best NRE Accounts for NRIs Across the GlobeFor Non-Resident Indians (NRIs), managing finances across borders becomes essential, and having the right bank account is crucial. One of the go-to options is the NRE (Non-Resident External) account, designed to facilitate seamless money transactions and savings for NRIs.What is an NRE Account?An NRE account is a type of bank account for NRIs to maintain and manage their foreign earnings in India. The acronym 'NRE' stands for Non-Resident External, indicating that the funds deposited into this account are from overseas sources. NRIs can deposit foreign currency into an NRE account, and the balance and interest earned are freely repatriable, i.e., both the principal amount and interest can be transferred abroad without any restrictions.NRE vs. NRO AccountIf you are just starting to explore the options of NRI banking, you might have heard of NRO accounts. NRE and NRO (Non-Resident Ordinary) accounts are two distinct types of accounts catering to different financial requirements. While NRE accounts are primarily for repatriable income and earnings from outside India, NRO accounts are for managing income earned in India. Both account types serve NRIs' distinct banking needs, providing avenues for managing Indian and foreign income separately.What Makes a Good NRE Account?Several factors contribute to making an NRE account a preferred choice for NRIs:Repatriation Benefits: Opt for accounts that offer seamless repatriation of both principal and interest earned without any restrictions.Interest Rates: Look for accounts that provide competitive interest rates to maximize returns on your deposits.Convenience: Choose banks that offer easy accessibility through online banking platforms, especially for NRIs residing abroad.Customer Service: Opt for banks known for their reliable customer service and efficient grievance redressal for a hassle-free banking experience.Best NRE Accounts for US-based NRIs and Foreign-Based IndiansSeveral banks offer top-notch NRE savings accounts tailored to meet the diverse financial needs of NRIs. Here are some of the best NRE accounts available. To determine the best account for your needs, view a more detailed comparison of each bank’s interest rate, key features, and more on our CompareRemit NRE Account Comparison Site.  ICICI Bank NRE Savings AccountA household name, ICICI Bank is a very popular and safe choice for your banking needs. It is the one most often chosen by NRIs.Key Features: Higher interest rates, zero balance requirement, online remittance services, and NRI-focused banking solutions.Learn more about ICICI NRI and to get started with your application. HDFC Bank NRE Savings AccountA competitive player in the field, HDFC Bank is known for its high interest rates and benefits for its customers. Key Features: Competitive interest rates, 24/7 online access, easy fund transfers, and a global presence.Yes Bank NRE Savings AccountYes Bank provides a unique feature which many NRIs find helpful, a personal relationship manager who can guide you through your questions and account needs. Key Features: Flexible interest rates, hassle-free fund transfers, a dedicated personal relationship manager is assigned to each account holder.  State Bank of India (SBI) NRE Savings AccountAnother household name, State Bank of India is reputed for its reliable service and dedication towards keeping the process simple and easy for its customers. Key Features: Widest network, attractive interest rates, simple documentation, and multi-currency facilities.Kotak Mahindra Bank NRE Savings Account Kotak Mahindra Bank serves as an excellent choice for those looking for a service that will give you a reliable and a high interest rate wielding account. Key Features: High-interest rates, convenient banking services, and personalized solutions for NRI customers.Axis Bank NRE Savings AccountAxis Bank, previously known as the ever-reliable CitiBank, continues the staple practices that gave CitiBank its reliable name. This is a great option for those looking for a bank with years of experience and reliability. Key Features: Flexible deposit options, competitive interest rates, user-friendly online banking, and diverse financial products.Choosing the right NRE account depends on individual preferences and banking needs. Each of these banks offers competitive interest rates, online banking convenience, and excellent repatriation facilities suitable for NRIs managing finances from abroad.NRE accounts serve as an ideal financial solution for NRIs seeking efficient money management, seamless repatriation of funds, and tax benefits. By choosing the right NRE account based on individual preferences and banking needs, NRIs can effectively manage their finances and easily send money back home to their loved ones in India.

Download the CompareRemit App
Download the CompareRemit App
Personalize your CompareRemit experience with your preferred corridor and receive target exchange rate notifications, seamless transitions to partner apps, and real-time comparisons of top remittance providers at your fingertips.
Personalize your CompareRemit experience with your preferred corridor and receive target exchange rate notifications, seamless transitions to partner apps, and real-time comparisons of top remittance providers at your fingertips.

Get Listed or Advertise

Download Our Free App

Try our faster, enhanced mobile app for a better experience

CompareRemit App