SYLLABUS SECTION: GS III (ECONOMY)
WHY IN THE NEWS?
The RBI Lens on Neobanks is taking a hard look at the business model.
- 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