SYLLABUS SECTION: GS III (ECONOMY)

WHY IN THE NEWS?

The RBI Lens on Neobanks is taking a hard look at the business model.

KEY ISSUES:

• The concern is that the digital model business can scale up very fast and could grow to be bigger than the underlying bank in terms of customers.
• Neobanks bridge the gap between the services that traditional banks offer and the evolving expectations of new-age customers.

WHAT IS NEOBANK?

• A neobanks is a digital bank that does not have any branches. Instead of having a physical presence at a set location, neo banking is entirely online.

Examples: Jupiter, Fi, Niyo, RazorpayX, etc.

 

SIGNIFICANCE OF NEOPAY:

• Neobanks can also afford to slash customer fees by a significant amount since they don’t have to bear the expenses of running physical locations.
• Neobanks are disrupting the traditional banking system by leveraging technology and artificial intelligence (AI) to offer a range of personalized services to customers.
• They simplify financial services to the point where they meet the expectations of today’s digital generation.
• They are increasing financial inclusion as they mainly cater to underserved groups like retail customers and MSMEs segment etc.
• Promote innovation and customization of services, and offer a level playing field to small banks.

CHALLENGES ASSOCIATED WITH THE NEOPAY:

• They offer only a small range of products and services.
• They are not able to cater to non-tech-savvy consumers.
• There is no direct regulation from RBI for these neobanks.
• There is also a lack of customer trust because of an absence of physical branches etc

Read more: UPSC CURRENT AFFAIRS

Source: Times of India