Before we dig a burrow into the world of digital finance, we need to know what these terms actually are.
Financial technology (abbreviated fintech or FinTech) is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance.(WikiPedia)
Neo-banks are online-only financial technology (fintech) companies that operate solely digitally or via mobile apps. Simply put, neo-banks are digital banks without any physical branches.(Internet Sources)
So, now the question is are they not same? Well the answer is a Yes and No! Why you may ask..
Well the answer has a bit explanation to it. Fintech is a generic term used to describe any Digital Only Financial entities including the Neo_Banks and all the Neo_banking features come under the tree of Fintechs.
Fintechs aim to provide an cutting edge technology driven services that are par with traditional banking/financial system and in some cases better than what we get from traditional banks! Fintechs have the ability to provide all the top services at a fraction of cost of what we get by Banks and other service providers. This is possible because Neo-Banks (in general) does not have any physical presence or need to maintain presence at all the places in which they provide services.
Ok, well fintechs/neo-banks are cost effective, feature rich, accessible for all , so is this the end of Traditional Financial System? Not so ! at least for the coming century! Why? not all transactions can be made possible through Neo-Banks, and many countries like India does not recognise Neo_banks as an Fully Licensed Banks as they have no headquarters nor have physical presence.
The Reserve Bank of India (RBI) says that India is one of the few jurisdictions with a specific Payments and Settlements law to “provide for regulation and supervision of payments and settlement systems in India and to designate the Reserve Bank as the authority for the purpose and the matters connected therewith or incidental hitherto”. The Reserve Bank regulates some FinTechs directly by granting them NBFC licenses (such as NBFC-P2P), or indirectly by regulating the banks and NBFCs associated with them. National Payments Corporation of India (NPCI) is the umbrella organisation for operating retail payments and settlement systems in India, as an initiative of the Reserve Bank and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
Banks in India are required to keep a minimum of 4% of their net demand and time liabilities (NDTL) in the form of cash with the RBI. These currently earn no interest. The CRR needs to be maintained on a fortnightly basis, while the daily maintenance needs to be at least 95% of the required reserves. In case of default on daily maintenance, the penalty is 3% above the bank rate applied on the number of days of default multiplied by the amount by which the amount falls short of the prescribed level.
Over and above the CRR, a minimum of 22% and a maximum of 40% of NDTL, which is known as the SLR, needs to be maintained in the form of gold, cash or certain approved securities. The excess SLR holdings can be used to borrow under the Marginal Standing Facility (MSF) on an overnight basis from the RBI. The interest charged under MSF is higher than the repo rate by 100 bps, and the amount that can be borrowed is limited to 2% of NDTL. (To learn more about how interest rates are determined, particularly in the U.S., consider reading more about who determines interest rates.)
Conclusion:
Although fintechs are very easy and effective, they are not the future of any country. They have a very long journey before dominating the traditional space.
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