Neo And Challenger Banks To Revolutionize New Age Banking System

Neo banks are digital banks that operate on partnered bank license in the market and have no physical branches to offer banking transactions. On the other hand, challenger banks operate with a full banking license in the market as established firms. Neo and challenger banks entered the banking industry with advanced features such as seamless payments, transfer and remittance solutions, opening and operating accounts, and alternative methods for assessing creditworthiness.

According to Allied Market Research, the neo and challenger market is expected to garner $471.0 billion by 2027 at a CAGR of 48.1% from 2020 to 2027. The rapid market growth is due to higher interest rates of neo and challenger banks as compared to traditional banks and better convenience provided via mobile applications.

Emergence of neo and challenger banks in various countries

The emergence of neo and challenger banks has improved the banking experience of customers as well. Xinja bank, Australia’s newest neo bank, plans to revolutionize its product line. It aims to enter the Indian and Malaysian markets as well. Moreover, the bank partnered with EPIK, an Indian B2B FinTech, that focuses on banking software solutions.

In other news, Japan has welcomed its first challenger bank- Kyash. Kyash is a start-up founded in 2015, which has applied for a host of licenses in Japan to offer banking facilities. As of now, it is a payment app that offers a connected visa card and has developed its dedicated processing system to reduce costs.

Prior to this, the Development Bank of Singapore, had launched a mobile-only digibank in 2016 that offered a simple account opening process and a physical visa debit card for cash withdrawal. The digibank uses a virtual chatbot developed by Kasisto, the creator of a digital experience platform.

Similarly, Namaste credit, an Indian online lending marketplace, became a full-fledged digital-only bank for small and medium businesses. It aimed at becoming the one-stop-shop for all kinds of businesses with the help of its Namaste Biz app. Apart from emerging digibanks, another major driving factor for the market growth is the shift in focus of the target audience.

Millennials: Prime target audience for neo and challenger banks

Neo and challenger bank start-ups have focused more on Gen Z to build a long-term relationship. The company, Kard, a French start-up, has offered customized products and facilities to match the requirements of the customers. For instance, banks have offered facilities that enabled parents to transfer allowance payments to the child’s debit card.

The neo and challenger banks, being newcomers in the market, are highly dependent on investor support and due to the Covid-19 pandemic, the banks have been fighting to grow. On the other hand, investors have started to transfer their money to larger incumbents considering that they are too big to fail and this way, their money would remain safe. However, the effects of the pandemic are estimated to remain for a short period, as the world would move toward complete digitization and that opens lucrative opportunities for the neo and challenger banks to grow post-pandemic.

The neo and challenger banking platforms have an edge over traditional banking systems as millennials disburse a lot of time on smartphones and would prefer having their banking systems on their phones. The neo and challenger bank market is likely to open new opportunities to emerging start-ups. Soon, neo and challenger banking will prove to be the easiest mode of banking and might be a boon to the economies of various countries.

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