The digital evolution: From brick-and-mortar banking to Neo Banks

The digital evolution: From brick-and-mortar banking to Neo Banks

When the term ‘bank’ is used, the first thing that comes to our mind is a financial institution accepting deposits and providing loans. Apart from these two functions, traditional banking also transfer funds, involve themselves in credit creation, or functions as an agent for collection of cheques, bills and drafts, collection of interest, dividend, payment of interest, payment of insurance premiums, purchase and sale of securities, demand drafts, mail transfer, locker services, tax advisory etc.

So basically, a traditional bank deal with depositor’s money for providing loan and does other financial services.

But the technology dynamics of new age banking are fast changing. Banking sector is evolving digitally to serve its customers better. Bank is no more a place to go. It is more of a task to do. Gone are the days when customers used to go to bank and stand in long queue to deposit or withdraw the money. Neo Bank is a new type of digital bank that exists without any branches. Neo Banks are disrupting the banking sector especially the way it operates and functions.  Now with your nimble fingers on the smartphone the money gets transferred or the money is brought to your home. No more going to bank for any transactions. The banking is done through the smartphone we have in our palm. If I were to crystal ball gaze into the future, I see no more branches of the bank. It will be all in the internet or in the smartphone. The onboarding, transactions, interactions will all be through smartphone.

New-age banking

The new age banking or the neo banks often ridicules the traditional banking as luddites or technology laggards. The neo banks are for the adventurous millennials. Customers are now attracted by the new offerings of these new age banks and their simplified processes.

Bank ‘X’ is one such new age start-up bank completely driven digitally. It plans to capture that segment of the market which is untapped. A marriage between e-commerce, banking, and logistics. A bank which will satiate the customers’ long standing demand for immediate refund of money when goods, bought through e-commerce ecosystem, are returned. The aim is to become the most reliable financial agent for both customers and businesses which trade through e-commerce web site. Bank ‘X’ proposes disruptive changes in the arena of payments and settlements. Bank ‘X’ provides ease of performing a transaction both offline and online. Bank ‘X’ is going to keep the interest of all the players in the ecosystem — the customers, the e-commerce sector, and the logistics industry. It will also provide its customers a typical savings, current accounts – but will be very interactive type. The money spent will be analysed based on the customer’s request. The refund option will also pop in these artificial intelligence-driven Bank.

Novel revenue stream

The major revenue stream for Bank ‘X’ will be from the e-commerce industry. E-commerce is getting benefitted from Bank ‘X’ because of instantaneous refund done by the latter. While e-commerce pays Bank ‘X’ after a specified period, the customers get instant refund and hence e-commerce pays the interest for this additional credit period given to them.

Bank ‘X’ was founded by a young entrepreneur in London who identified a need of bank which can fill up the existing vacuum in the entire e-commerce ecosystem and fulfil the need of all the three players in the e-commerce ecosystem. Initially a prototype was developed that could execute all the key value offerings perfectly blend to achieve a frictionless life cycle. I came across them coming up humbly with their idea. They were not aware of the strength of their product which could potentially take the entire financial industry by storm. I am playing the role of mentor to them guiding and navigating them through the corporate structures.

K Satish Kumar is a keynote speaker, author, the Global Head of Legal and Chief Data Protection Officer of Ramco Systems. Among the many awards he has received, the coveted are ‘Top 50 Legal Leaders 2019’ by Legal IP Gorilla in Singapore, ‘GC PowerList India 2018’ by London-based Legal 500 and ‘Legal Counsel of the Year-2018’ by INBA. He is actively involved in many pro bono activities through Chennai Lawyers. The author can be reached at [email protected] The views expressed are personal.