Neo-Banking and the Unbanked: FinTech Solutions for Financial Inclusion

Abstract

To accommodate the development, the neo-banking or the fastest growing segment of the financial technology (FinTech) industry has re-established the traditional banking models by providing technology-enabled and branchless banking solutions. Through examples of how neo-banks can help solve the longstanding problem of financial exclusion, especially of those who are unbanked and underbanked, this paper investigates the potential of neo-banks to solve the aforementioned problem. Using mobile platforms, application programming interfaces (APIs), artificial intelligence, and cloud-based infrastructure, neo-banks also provide low cost, convenient, and easy-to-use solutions overcoming the traditional barriers to banking geographical barriers, cumbersome documentation, as well as hefty service fees. The research design involves a mixed method mixing both literature review and cases study of the emerging markets in a bid to help analyze how neo-banks contribute to access to savings, payments, microcredit, and insurance products. Particular focus is put on areas with low rates of bank utilization and spiked mobile uptakes, where neo-banking platforms have effectively tapped into the trends of digital KYC, lightning fast onboarding, and domestic financial literacy training systems. The results have shown that the cost-to-serve ratio can be reduced by a considerable degree and the market reach could be expanded with neo-banking to allow scalable financial inclusion. Nevertheless, the regulatory requirements, the threats of cybersecurity, credit, and the digital literacy gap, are still the limiting factors. The paper shares the experience on policy frameworks and the model of cooperation between neo-banks and traditional banks and telecom operators as a driver of long-term growth. Finally, the study showcases neo-banking as a groundbreaking activity that can end the two worlds between the financially included and the conventional financial environment. With the combination of the innovation in technology, inclusive design, and enabling regulation, neobanks can be instrumental in supporting the global sustainable agenda on universal access to financial services.