There are so many new neo banks that have started coming up in India and every one of them is claiming to ease the banking needs of the individuals. They have also started giving a lot of discounts to attract more millennials because that is their target audience. So before knowing why it is risky, let us understand what is NeoBanks.
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NeoBanks are a type of digital bank which does not have any branches, this makes them unique and also they simplify the financial services to meet the expectations of the digital generation. The NeoBanks are making new heights and new players have entered the market and there is fierce competition to get new users. Simply put, a neo bank is a fintech firm which provides digital and mobile services like payments, cards, money transfers, lending and other banking activities.
We can say it is a shorter form of a bank for new-age customers where all their banking activities can be done over digitally. The traditional banks are trying to move digitally but these neo banks have started their infrastructure digital so for them taking data-driven decisions is much faster and can scale too.
The good thing about Neo Banks is the scaling, since they do not have an actual branch, they operate everywhere and thus make the new heights. And because of the same reason, they reduce the customer fees as their operating cost is not much.
The NeoBanks provide their services using the Mobile App, so doing banking is just like ordering food now. Some of the notable neo banks in India are Jupiter, Fi, Niyo etc.
Now the question is that is it risky to keep money in NeoBank, and the answer is no. First of all, for a customer, there are no banks involved but on the backend, these neo banks work in partnership with the traditional banks so the money is kept in the bank itself. So the money deposited in a neo-bank account is secure, because according to the RBI even if you put your money in Neo Banks, RBI guarantees insurance up to ₹5 lakhs through Deposit Insurance and Credit Guarantee Corporation (DICGC). This is because the underlying account is been provided by the traditional bank itself.
So to keep it short, when opening an account in Neo Banks you are actually creating an account in a traditional bank itself with additional benefits for the Neo Banks like less fees and ease of doing business.
