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Neo banks: new age & mobile-first
Get an overview of how neo banks work

The concept of neobanks is the newest thing in the world of banking. Over the past few years, a lot of users have opted for this fresh tech-driven and innovative mode of banking that offers something different, something more easy to handle. But it’s not just the novelty that has contributed to people giving neo banking a chance and led to the opening of thousands of virtual bank accounts in India.

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What is a neo bank?

Neo banks are financial technology (fintech) companies that provide banking and other financial services and function entirely online via mobile apps. Simply put, they are online-only banks without physical branches. Fintechs are strong at technology and place utmost importance to provide an excellent user experience through their digital platforms–just what the new age users are expecting of their banking and financial services.  

How exactly does a neo bank function?

The first thing that needs establishing is that neo banking should not be confused with digital banking. They are both similar in being banking services that operate through mobiles and other devices, and use technology solutions to reduce fixed overhead costs. That is where the similarities end, though. There is a pronounced difference in how neo banks are set up and what they offer: a simpler, intuitive and enjoyable user experience.

In terms of operating models, neo banks may follow one of three approaches:

  • Non-licensed fintechs that collaborate with traditional banks and provide a mobile/web interface and wrapper around the products of their partner banks
  • Traditional banks with their own digital initiatives
  • Licensed neo banks that exist as their own entity without tying up with a traditional bank. This is usually with digital banking licenses in countries that allow it. India is yet to allow freestanding licensed neo banks.

Neo banking in India currently mostly falls in the first category. While some neo banks carry banking licenses, a majority partner with traditional banks instead of obtaining their own banking license. In this operating model, the banking partner provides the overall platform for managing customer accounts, holding customer funds and the rails for interbank payments and settlements. The neo bank is responsible for product distribution and managing the end-to-end customer journey from customer acquisition to servicing.

Many neo banks, such as Monzo in the UK, Xinja in Australia, and N26 in Europe, offer banking products and services, just as a traditional bank would. Other neo banks, such as UK-based bank Starling, offer both low and no fee accounts and services. Some banks also offer tools to build both branded and white-labelled banking products and services, playing into the concept of “Banking as a Service”.

What are the features of a neo bank?

Just like the case with new initiatives that are tech driven, there is some resistance to neo banking. But a simple reason for this is a lack of awareness regarding the details associated with it. As you can see below, there’s more to neo banking than a digital banking service with a pretty interface.

1. Banking as a service

Neo banks aim to simplify the financial management process for their users, and the key to achieving this in the digital banking experience lies in working with existing banking products. They essentially build the products and services application layer on top of the core banking products and payment infrastructure provided by banking partners. neo banks also have third party tie-ups for cross-selling value-added products. This enables them to focus on the user experience aspect of their products.

2. New age, flexible and scalable tech platforms

Neo banks, often describing themselves as tech companies first and banks second, are much more technology-oriented than your typical bank. A look under the hood will reveal that both the front and back ends of a neo bank’s system are 100% digital and aren’t held back by bulkier legacy tech platforms. They’re also primarily app-driven, meaning that for most common functionalities such as account opening, fund transfer or customer support, you’re likely to be able to get the job done with a few taps of your fingers. Opening a virtual bank account and managing your finances with neo banks is quick, paperless, and can be done right from your couch.

3. Marketing as a strategic differentiator

One major area of focus in neo banking is the approach to marketing. What neo banks may lack in inherent customer trust and legacy (as many of them are essentially startups), they more than make up for with a wide range of customer engagement activities. This is where neo banking completely breaks off from digital banking. It is common for neo banks to drive campaigns through digital and social media, and focus on building communities, influencer marketing, and publishing encouraging testimonials. Customer referral is also a huge asset for any neobank, and it is often modelled on the likes of successful platform economy giants like Uber and Netflix.

What is the difference between neo banks and traditional banks?

  Traditional Banks Neo Banks
PLATFORM Physical branches, ATMs, online apps 100% digital
TYPE OF BUSINESS Financial Institutions Backed Startups
CUSTOMER RELATIONSHIP Hit and miss. Can be good or bad but not much focus An integral part of the business
FEES Unclear and multiple fees Fully transparent and meagre fees

Time consuming and tedious. Still needs visits to a branch.

Fast and 100% digital
EXTRA OFFERINGS Limited/sporadic Regular rewards like cashback offers

It is common to see neo banking being misinterpreted and confused with other forms of banking. A leading cause for this is not understanding the concept, which is what we aim to address here by looking at some key areas of confusion:

1. No physical locations

Neo banks don’t have any brick and mortar locations, and this sets them apart from traditional banks. Neo banking is 100% digital and app-driven, which means it can be done entirely online without ever leaving your home. Many people are unsure of trusting neo banks with their finances for this very reason of non-visibility, and that’s precisely why most neo banks partner with traditional banks, to offer security to customers.

Digital banking services are completely online as well, but they do not exist as a separate entity. They are always a digital service offered by a traditional bank, and might require you to visit your local branch for a few things.

2. 100% Startups

All neo banks are startups that offer financial services. Some focus on specific pain points that users might have with current banking services and simplify these tasks. Segment specific products help in offering financial services that actually matter to their respective audience. For instance, Niyo has a range of products that cater to different user segments:

  • NiyoX: A 2-in-1 Digital Savings Account + Wealth Management bundle for the millennials with add-on benefits like Invest the Change for micro-investing and Digital Salary Account 
  • Niyo Money: A complete wealth management suite for active investors
  • Niyo Global: A zero forex markup card for the global Indian traveller
  • Niyo Bharat: A prepaid salary card for blue-collar workers

Traditional banks and digital banks are always backed by financial institutions, and there can be a lack of synergy between what the customer wants and how it is offered to them.

3. Customer focus

The fact that digital banks and traditional banks come from financial institutions can be seen as something that provides security in the minds of customers. But in most cases, this also involves bureaucratic troubles and following legacy practices without making proactive changes that cater to the needs of the customer. User experience is the hallmark of most neo banking services. By bringing banking to customers’ handheld devices and making things simpler, faster, and more efficient, neo banks are bridging the gap between what the new age users want and the traditional banking system.

Neo banks also tend to be vocal about their principles in a way that traditional and digital banks might not be.

How are neo banks evolving?

Although neo banking is a newer concept in India, it has seen tremendous growth ever since it first started in 2013. Neo banks began gaining momentum in 2016 when only 22% of mobile users in India were using smartphones, jump to 2020, the number had reached 54%, and it is expected to rise to 96% by 2040. 

There are currently about a dozen neo banks in India. 


Name of the Neobank

Founding Year


























FI Money



North Loop








 List of Neo Banks in India

India has the second-largest number of internet subscribers and smartphone users which presents a very positive growth prospect for neo banks in India. In recent years, neo banks are raising huge amounts of funds from major investors globally since they recognize the potential of a large underbanked segment in India. 

Can neo banks replace traditional banks?

It’s highly unlikely that neo banks can entirely replace the traditional banking system. Considering neo banks are a newer concept and they offer a limited range of products and services, they still have a long way to catch up with the spectrum of services offered by the traditional banks. Since neo banks are entirely digital, they may not be able to relate to the non-tech-savvy segment of the country that still believes in face-to-face interactions with their financial representative. Besides, without a full-fledged banking license, neo banks are still dependent on their partnerships with traditional banks.

The future of neo banks in India is expected to change exponentially. The Niti Aayog in November 2021, proposed setting up full-stack “digital banks” in India which will entirely rely on the internet to offer their services and not on their physical branches.

At Niyo, we place a huge emphasis on customer referral, rewards, feedback and testimonials. We actively engage with our 50K+ users in the Niyo community. With such a strong digital presence, forging connections and prioritizing the customer experience are key focal points for any neo bank, and we at Niyo make all decisions with our customers at the heart of it. 

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