What is the Difference between Digital banking vs Traditional banking?

Digital banking vs Traditional banking

On one corner, we have the new age digital banks – the Neo banks and small banks; on the other corner we have the traditional banks. How do these compare? Do they offer similar services? Are the digital ones just as safe? Read on to learn more about the phenomenon that has been re-shaping the banking sector.

Neo Banks
Source: IAS Parliament
Neo banks: 

Neo banks, also known as digital banks or online banks, are financial institutions that offer banking services exclusively through digital channels, such as mobile apps and websites. They do not have physical branches, and customers can access their accounts and perform transactions online or through their mobile devices. Neo banks often have lower overhead costs than traditional banks, which allows them to offer competitive rates and fees.

Small banks: 

Small banks, also known as community banks or regional banks, are financial institutions that serve a specific geographic region or community. They are typically smaller in size than traditional banks and may have a limited range of products and services. Small banks often have a strong focus on customer service and may be more attuned to the needs of their local community.

Traditional banks: 

Traditional banks, also known as full-service banks or brick-and-mortar banks, are financial institutions that offer a wide range of banking products and services through physical branches and online channels. They typically have a larger customer base and a more extensive network of branches than small banks. Traditional banks may offer more products and services than small banks, but they may also have higher fees and less personalized service.

The main difference between these types of banks is their size, range of products and services, and delivery channels.

Neo banks and small banks tend to be more focused and specialized, while traditional banks offer a wider range of products and services but may have higher fees and less personalized service.

Smart Advisors

The market potential for neo banks and small banks in India is significant, due to a number of factors:

Large and growing population: 

India has a population of over 1.3 billion people, making it one of the largest and most populous countries in the world. This large population provides a large potential customer base for neo banks and small banks.

High mobile and internet penetration: 

India has a high rate of mobile and internet  penetration, with over a billion mobile phone users and more than 500 million internet users. This widespread use of technology provides a strong foundation for the growth of these new age banks, which rely on digital channels for delivering their services.

Increasing use of digital financial services: 

There is a growing trend towards the use of digital financial services in India, as more people adopt mobile banking and other digital payment methods. This trend is expected to continue as the country continues to digitize its economy.

Opportunity to fill gaps in the market:

These new age banks have the opportunity to fill gaps in the financial services market that are not being adequately served by traditional banks. For example, they may be able to provide personalized and customized financial services to underserved or underbanked communities.

Government initiatives: 

The government of India has implemented several initiatives to promote the adoption of digital financial services, including the launch of the Unified Payments Interface (UPI) and the Jan Dhan Yojana financial inclusion program. These initiatives can help drive the growth of neo banks in the country.

The market potential for these new age banks in India is strong due to the large and diverse market, growing demand for financial services, supportive government initiatives, and the opportunity to fill gaps in the market.

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