Neo-Bank: Latest phenomenon of digitalization in modern financial technology

Neo-banks are offering a new point of view to the banking sector

Neo-banks are digital financial institutions that function without physical branches. In the past, these banks used to collaborate with traditional banks, as they lacked banking licenses. However, regulatory authorities now grant licenses for their banking operations. As they operate digitally, these banks generally have lower operating costs, allowing them to provide advanced services at affordable or low rates.

Various categories of neo-banks cater to the unique needs of each customer in the ever-evolving business landscape

Neo-banks serve various customer segments and offer tailored solutions to meet their specific needs. The following are some common types of neo-banks:

» Front-end neo-banks A front-end neo-bank is a type of bank that does not have a valid banking license to operate on its own. Instead, it partners with a traditional financial institution to provide services to its customers, relying on a financial institution’s support. These neo-banks often rely on the balance sheets of regular banks to carry out their operations.

» Digital banking units Digital banking units are online branches of well-known banks that operate independently. To operate as a stand-alone digital bank, a license for virtual banking is required. Once these banks have enough capital to safeguard the savings of their investors, they can obtain their banking license.

» Full-stack digital banks (licensed) Full-stack digital banks, on the other hand, offer a wide range of services and have the necessary regulatory approvals to operate as banks. They maintain their own separate identities and balance sheets and can provide services such as issuing loans and accepting deposits. Unlike traditional banks, these digital banks are not burdened by expensive physical locations in an increasingly digital world.