What is a Neobank? How to Implement AI in Neobanking Market

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What is a Neobank? How to Implement AI in Neobanking Market

In this article, we will learn about neobanking, explore the technologies employed by neobanks, understand the role of AI in neobanking, and the future of AI in shaping the banking sector.

The world of banking is undergoing a profound transformation with the rise of Neobanks, a new genre of financial institutions that are redefining the way we interact with money.

Neobanks have emerged as disruptive players in the financial industry, offering innovative and customer-centric banking experiences.

With the advent of digitalization and advancements in technology, neobanks are capitalizing on the power of artificial intelligence (AI), machine learning, big data analytics, and cloud computing to provide a range of financial solutions.

AI, in particular, plays a pivotal role in enhancing the efficiency, accuracy, and security of neobanking operations. From AI-powered chatbots providing 24/7 customer support to advanced fraud detection systems, AI is revolutionizing the neobanking landscape. 

In this blog, we will delve into how AI can enhance the customer experience of neobanking. We will also answer questions like:

●      How does a neobank work?

●      What are the benefits of implementing AI in neobanking?

●      How is the future of AI & neobanking aligned?

But first, let’s understand, What is a neo bank?

What is a neobank?

A neobank, also known as a digital bank or challenger bank, is a financial institution that operates exclusively online without any physical branches. Neobanks leverage technology to offer a range of banking services to customers in a convenient, user-friendly, and digital-first manner. These innovative financial institutions aim to disrupt the traditional banking industry by providing personalized and customer-centric experiences.

How does a neobank work?

As previously mentioned neobank is a digital-only bank, so it operates through online platforms and mobile apps.

Neobanks have a distinct business model compared to traditional banks and also generate revenue through the margin between deposits and loans, similar to their conventional counterparts.

It allows customers to manage their accounts, make transactions, and get support using digital tools. Neobanks focus on convenience, affordability, and personalized services, using technology to streamline operations and offer a seamless banking experience.

The rise of neobanks is driven by their ability to offer cost-effective and highly personalized services through the utilization of advanced technologies such as artificial intelligence (AI), automation, and cloud computing.

A survey conducted by McKinsey and Company in 2021 reveals a significant surge in the adoption of digital banking among customers in developing countries across the Asia-Pacific region. The survey findings indicate a substantial increase from 54% in 2017 to 88% in 2021, showcasing the rapid expansion of customers actively engaging with digital banking services.

This growing demand for digitalization in the banking sector is poised to act as a catalyst for the further growth and development of the neobanking market.

How can AI be implemented in neobanking?

AI plays a crucial role in neobanking, enabling a seamless and personalized banking experience. Neobanks harness AI technologies to analyze customer data and deliver customized recommendations for financial products and services. This personalized approach helps meet individual customers’ needs and preferences, enhancing their overall banking experience.

AI-driven risk management is another area where neobanks benefit. By leveraging AI algorithms, neobanks can detect and mitigate fraud and other financial crimes effectively. Real-time transaction monitoring and AI-powered analysis enable the identification of suspicious activities, ensuring the security of customers’ assets and combating financial fraud.

Improving customer experience is a key focus for neobanks, and AI plays a significant role in achieving this goal. AI-powered chatbots and virtual assistants enable neobanks to provide round-the-clock customer support and quick responses to queries. This enhances customer satisfaction by providing immediate assistance and reducing the reliance on human customer service representatives.

AI & neobanking: Around the world

Neobanks are disrupting the global financial services industry on the back of strong trends, but their long-term success hinges on embedding data and AI capabilities extensively across all aspects of their operations.

In 2022, neobank investors shifted focus from growth at all costs to profitability. Most of the world’s 291 neobanks were not able to turn a profit, and investors are losing patience. With the funding route unlikely to abate, 2023 is shaping up to be a do-or-die year.

Neobanks provide highly personalized services at lower prices by utilizing technology such as artificial intelligence (AI), automation, and machine learning.

For Instance, Revolut is a UK-based neobank that uses AI to analyze customer data and provide tailored recommendations for financial products and services.

In addition to Revolut, NatWest has introduced a personal finance app called Mimo. This app takes advantage of open-banking APIs, AI, and data analytics to create a unique social feed that assists customers in effectively managing their finances. By utilizing these advanced technologies, Mimo helps users gain insights into their spending habits, make informed financial decisions, and stay connected with their financial goals.

Industry experts, such as Gartner, predict Banking-as-a-Service (BaaS) will hit mainstream adoption within two years. Gartner also mentions that 30% of banks with greater than $1 billion in assets will launch BaaS for new revenue by the end of 2024, but half will

Benefits of AI in neobanking

The integration of artificial intelligence (AI) in neobanking brings numerous benefits to both customers and financial institutions. Here are some key advantages of AI in neobanking:

1. Enhanced Customer Experience:

AI-powered chatbots and virtual assistants offer 24/7 customer support, providing instant and accurate responses to inquiries and improving overall customer experience. These virtual assistants can handle a wide range of queries, from account balance inquiries to transaction history and account management, ensuring prompt and efficient customer service.

2. Personalization:

AI algorithms analyze customer data, financial behaviour, and preferences to deliver highly personalized financial recommendations. This level of personalization allows neobanks to offer tailored products and services, such as investment portfolios, insurance plans, and loan options, catering to individual customer needs and increasing customer satisfaction.

3. Efficient Risk Management:

AI algorithms enable neobanks to assess creditworthiness and risk profiles accurately. By analyzing customer data and financial history, neobanks can make more informed lending decisions and develop robust credit scoring models. This leads to improved risk management and reduced default rates. This proactive approach also helps prevent fraudulent transactions, ensuring the security of customer accounts and transactions.

4. Streamlined Operations:

AI automates various manual and repetitive tasks, allowing neobanks to streamline their operations and reduce costs. Tasks such as document verification, identity checks, and risk assessments can be automated, resulting in faster and more efficient processes.

5. Scalability and Agility:

Neobanks, powered by AI, can scale their operations quickly and adapt to changing customer demands. AI technologies enable neobanks to handle a large volume of transactions and customer interactions seamlessly, ensuring smooth and efficient operations even as customer bases grow.

6. Cost Efficiency:

By automating processes and reducing the need for physical infrastructure, neobanks can operate with lower overhead costs compared to traditional banks. This cost efficiency allows neobanks to offer competitive interest rates, lower fees, and improved financial benefits to their customers.

7. Compliance:

AI can assist neobanks in monitoring transactions, detecting suspicious activities, and ensuring compliance with regulatory requirements. It helps in automating compliance processes, reducing errors, and mitigating risks.

The future of AI & neobanking

The future of neobanking and AI is promising, as both continue to revolutionize the finance industry. Neobanks are well-positioned to become significant players, offering a wide range of innovative features that prioritize speed, security, and convenience. AI will play a crucial role in enhancing these features, enabling neobanks to deliver highly personalized recommendations, streamline processes through automation, and improve risk management.

The integration of AI into neobanking will also extend to serving small and medium-sized enterprises (SMEs). Neobanks have the potential to provide SMEs with the same level of efficiency, convenience, and flexibility that they offer to individual customers. By harnessing AI capabilities, neobanks can equip SMEs with valuable insights into their financial health, enabling them to make informed decisions and navigate their business operations more effectively.

This combination of neobanking and AI will drive the expansion of services tailored to the unique needs of SMEs, ultimately facilitating their growth and success. As AI technologies continue to advance, neobanks will be able to offer increasingly sophisticated solutions, further empowering SMEs and solidifying their position as trusted partners in the financial ecosystem.


Neobanking and AI form a powerful alliance in the digital age. Neobanks offer fast, secure, and convenient features, while AI enhances them with personalized recommendations, process automation, and improved risk management.

This partnership is reshaping the finance industry, but challenges like fairness and accessibility must be addressed for a balanced future.

We at Datatobiz, understand the importance of innovation and are committed to providing our clients with cutting-edge neobanking services. Our goal is to continuously incorporate the latest advancements in technology to enhance the banking experience. Join us today to witness our ongoing efforts toward improvement and stay at the forefront of digital banking innovation.

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