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This 3 minutes read explores the differences between Traditional Banks Vs Challenger Banks Vs Non Banks- how they differ in organisation and services they provide.
‘Neobank’ are quite the buzzword in the payments and finance space.
In fact, As per Statista, the market size of neobanks is growing at a rapid pace. The sector is estimated to reach a whopping USD 722.6 billion by 2028.
But how exactly are neobanks different from traditional banks? Or challenger banks, for the matter?
Let’s uncover some answers in this piece.
What Is A Neobank?
Neobanks are new-age banking players that are reshaping the finance sector. It’s filling the gap between financial and Fintech firms and bringing their services under one, single umbrella.
For instance, a neobank offers an amalgamation of the following facilities.
- Traditional banking services like:
- Cash deposit and withdrawal
- Open and operate a bank account
- large-ticket loans
- Ledger support
- Credit cards with add-on features and benefits
- Saving schemes like fixed deposits, etc.
- Challenger banks services like:
- Payment gateway
- Digital wallets
- Asset management
- Small-ticket loans
- Peer-to-peer lending
- Alternative credit scoring
Note, neobanks are digital-only banks that do not have any physical branches like traditional or challenger banks. They operate purely online, majorly via mobile apps. To state, they’re an excellent banking plus financial management option, especially for the tech-savvy and the underbanked population.
Traditional Banks Vs Challenger Banks Vs Neobanks
Neobanks are often confused with challenger banks. However, they’re quite different from both traditional and challenger banks. Here’s a table of differences for better understanding.
| Traditional Banks (Monoliths) | Challenger Banks (Modulars) | Neobanks (Composible banks) | |
| Structure & function | Legacy financial institutions are the licensed to accept deposits, disseminate on-demand cash, and make loans | Technology-driven financial institutions engaged in automating and improving the delivery of financial services | 100% digitized financial service providers that use apps and online platforms to offer both modern and traditional banking services |
| Purpose | Focused on security and financial risk management | Focused on increasing customer base by offering new-age financial services | Focused on enhancing customer experience by offering personalized and customized traditional & modern financial services |
| Market coverage | Larger market coverage | Comparatively smaller marketer coverage | Limited market coverage since neobanks offer 100% online services |
| Technological reliance | Does not rely heavily on technology for day-to-day activities | Relies heavily on technology | Relies heavily on technology |
| Organizational structure | Rigid organizational structure with restricted innovative measures | Flexible organizational structure with fewer barriers to trends that encourage innovation | The entire structure works on innovation to address the changing needs of the target audience |
| Locations | Brick & mortar branches | Online + brick & mortar branches | Only online branches |
The financial ecosystem is changing drastically.
Customer-centricity is taking the center-stage forcing financial institutions to revolve their activities around this very component.
It will be interesting to see how neobanks transform the financial services landscape.
Even more so, to witness how customers respond to transformations.
