Neobanks in India: Current Establishments and How is the Future?
The Indian financial industry has done through many revolutionary changes in the past and has paved the path for new technologies and processes. The establishment of neobank is one such laudable move that the Indian financial sector has taken for the betterment of the citizen. 100% digital presence and no impediment caused by the legacy system are two things that make neobank exceptional.
How this move will revolutionize fintech investment and people’s life? What future holds for this technology? These are some questions that we’ll answer in this post.
What Neobank Refers To?
You might know about accounting and billing software applications like Your Khata by STW that let you file GST returns, handle inventory, billing, invoicing, and so on. But have you ever thought, if you or your business could do all banking activities without the need to see your bank ever? That’s what Neobanks are all about.
Neobank is a digital bank with no physical presence. Unless customary banks, neobanks do not have any specific-location-based presence; they are accessible from anywhere.
Designed specifically for today’s tech-savvy generation, neobanks offer a wide range of financial services remotely. These banks are not licensed and are dependable on their banking partners for license and compliances related aspects.
Presently, neobanks are of two categories in India.
- The first category includes RazorpayX, and Instant Pay & Open. These neobanks work directly as service providers.
- The second category involves neobanks that work as online partner of an established and recognized bank. For instance, SBI YONO is no bank entity of SBI.
Though the concept of neobank is still in the infancy stage, it’s firming its feet as the customers’ response is impressive.
The Modus Operandi of Neobank
Now that neobanks are becoming mainstream, it’s more likely to use them sooner or later. This is why getting familiar with its modus-operandi is a wise move to make. We have something to share with you in this regard.
Neobanks adopt an entirely different operational model. Their per-transaction fee is comparatively less than customary banks. They are entirely customer-centric and offer highly customized services empowered by technology.
The decisions of neobanks are driven by data analysis technology and automatically process the data collection and analysis. Using the collected data and done analysis, neobanks generate customer cohorts and take action. The technology used in neobanks is way advanced and ahead of traditional banks.
Using this methodology, the common experience offered by neobanks in India involves:
- Banking as a Service (BAAS);
- Data-driven decisioning;
- banking product customization;
- Open APIs ;
- Cyber security features.
However, traditional and neobanks are similar on one front. They both make a profit or earn by money lending and inflow.
The Wins with Neobanks
It’s true that neobanks have to come a long way. But, there are certain traits that make neobanks lucrative and desirable. Here are they:
Unmatched Convenience
Opening an account, completing a transaction, and managing an account in neobanks is far less tedious than traditional banking. There is not that much paperwork in the neobanks. One only has to download the app, create a profile, complete the verification process, and start using its facilities. Customer onboarding is so much quick and effortless in neobanks.
Some of the neobanks are so advanced that they have leveraged the payment processing with smartwatches and other wearables granting customers the capability to make a payment from anywhere. It has accelerated the payment processing at each stage.
Quick Request Processing
Whether you apply for a loan or request for a debit/credit card, request processing is superfast in neobanks. It’s because there is no paperwork and a long queue. Once verification is done, it will be applied to every request processing instantly.
It saves a huge deal of time and effort.
Less Operational Cost
Opening a physical bank demands a lot of upfront investment and every aspirant, even if qualified to open a bank, cannot afford it. With neobanks, one remains tension-free at this front. As the initiative-takers have to make less investment, they charge less transection fee from customers. It means it’s a win-win situation for everyone.
Amazing user experience
As long as you have an internet connection and a data-driven app, you’re allowed to avail the facilities of neobanks anytime and anywhere.
Instant international and national payments can be made. The apps are also developed with the simplest possible interface. If you’re using any other Android or iOS app then you will be able to use a neobanks app. No special technical expertise is required to operate them. In fact, the banking procedures are also done with simple drag-and-drop. Few click here and few clicks there. Banking was never that easy.
The Current Situation of Neobanks in India
Globally, neobanks are recognized and are becoming a dispensable part of one’s life. The market research says that the neobank industry was somewhat near to $50.2 million in 2020 end. The US, UK, and Germany are the leaders of this domain.
What about India? Well, this banking trend is welcome with full arms in Indio as well with certain limitations. For instance, 100% digitization of banks is not allowed. They are not licensed. They have to work in conjecture with traditional banks.
Other than the regulation and recognition front, neobanks in India have to deal with data security and the use of technology. The traditional Indian banks lack adequate technology and data security infrastructure to support neobanks.
Despite all these challenges, there are new neobanks in India that are doing a wonderful job. For instance, there is RazorpayX, India’s lastestneobank. More than 10,000 customers have availed of its services. It allows customers to open fully functional customer-operated accounts. Its offers all the leading banking features like debit cards, account statements, checkbooks, and debit cards.
Open is another very famous neobank in India. It started its journey in 2017 and primarily aimed at start-ups and small businesses. It brings banking and payment to one place. The best feature of Open is ist payment API that gets integrated with different business websites. Online businesses can easily integrate it with the store. By 2019, this neobank managed to raise its funding to $30 million. Tiger Global, Tanglin Venture Partners, 3one4 Capital, Speedinvest, and AngelList Syndicate were the angel investor.
Some of the other famed neobanks are:
- InstantPay
- Niyo
- 811 by Kotak
- SaveIN
- Digibank by DBS
- SBI YONO
- Walrus
As the investments in this domain are growing, we are likely to see more options in this category.
What Future Hold For Neobanks?
Neobanks is one of the fastest-growing fintech initiatives in the Indian and global perspective. We the words of recent researches are to be believed, the global neobank industry is going to touch the mark of $400 billion by the end of 2026.
India too will enjoy a fair share of this growth. Presently, India is witnessing the highest adoption rate in this sector. However, the hybrid approach, blending traditional and digital banking, is a viable option for India as a major population stays in rural areas and takes time to ditch the customary procedures.
Ending Notes
Neobanks is more than a trend. Seeing the cost-effectiveness and ease of operations involved in this banking model. We can easily conclude that neobanks are here to stay. Honestly speaking, it’s for good only. It makes banking convenient for everyone. However, neobanks have to work harder than ever to win the trust of RBI and get licensed. The higher security risks and lack of appropriate infrastructure are two major obstacles that neobanks need to overcome. If that’s done, neobanks have a bright future.
