Neobanks- The future of banking

Ankush is a 27-year-old freelance graphic designer based out of the startup capital of India, Bangalore. Having bagged a super exciting project with a leading creative agency in India, Ankush approached his nearest SBI branch to get a personal loan worth INR2 lakhs to fund a high-end laptop and a pen tablet - both of which were integral to his dream project. 

Now, Ankush had never owned a credit card, nor had he applied for a loan earlier. This meant a lack of a credit history upon which the bank could lend him the loan. To add to his troubles, being a freelance designer, Ankush did not have a steady source of income. And therefore, despite earning around INR1.5 lakhs per month from his freelance gigs, upon approaching the bank, Ankush was refused the loan. He needed to show a healthy credit history or use his parent’s house or submit some of his mother’s jewelry, which would work as a collateral to the loan. 

Ankush was adamant that he would not use his parent’s house or mother’s jewelry as collateral for something as basic as a laptop or pen tablet. He then visited three more lenders, all of whom either outrightly refused to grant him the loan or were charging exorbitant interest rates due to the lack of any credit history.

At last, he went to a private-sector lender and opened a new savings account with them. Here, he ensured to maintain a minimum balance of INR20,000 for around three months, following which he was issued a credit card. Having maintained a robust credit history for about six months or so, he applied for a loan at the same lender. This time the loan was approved. Sadly, the entire process took almost an year. 

Rashi is a renowned food influencer on Instagram. She also worked full-time as the head chef of a 5-star hotel chain in Delhi. Unfortunately, due to the ongoing pandemic, the subsequent lockdown and its drastic impact on the economy, she lost her job in May. 

Rashi and her husband had earlier this year invested in a property in Noida. The property was a little out of their budget, but Rashi and her husband had pooled all their life-long savings for the down payment of the house. Their first installment was due in July. 

Given the fact that Rashi had just lost her job, she and her husband decided to apply for a loan to meet the instalment. However, given the existent slump in the economy clubbed with the loan moratoriums announced by the RBI, most banks they approached refused to lend them the loan. Eventually, they had to default on the first installment..

Manju runs her own salon in a suburb in Mumbai with 7 girls to help her. The rent of the salon alone is around INR75,000. Adding to this, is the salaries of the 7 employees, which amount to around INR1.5 lakh per month. With the COVID-19 pandemic, the lockdown that followed and the rise of Maharashtra as a hotspot, salons across the state were severely hit. In spite of the reopening of salons, the business remained low, and Manju had to let go of 5 of her employees. 

While the benevolent owner agreed to cut down the rent, with business picking up at a snail’s pace, Manju found it difficult to run the business, plus pay her remaining two employees. She approached her bank, and was granted a loan after much negotiation and paperwork, but at a rate higher than the usual. The loan might help Manju run the salon for the next 3 months, but she is betting hard on the business to pick up so that she can pay back the loan comfortably. 

What do the above three stories tell us? 

You might receive numerous calls, mails and messages regarding pre-approved loans, but actually getting one might be an arduous task if you don’t have a suitable credit history, minimum balance or steady source of income. 

Given the rising number of bad loans burdening the already strained banking sector in India, the insistence on the part of traditional banks on certain prerequisites to issue a loan are understandable. What does a customer do in these circumstances?

Enter, #neobanks. 

Neobanks are digital-first branchless banks, which usually partner with traditional banks to address the rampant issue of credit accessibility.

These primarily seek to cater to Micro, Small and Medium Enterprises (MSMEs), startups, individuals, small businesses with little or no credit history and unbanked segments of the society that are often overlooked and considered unprofitable by traditional banks. 

Our use of conventional reach out models of converting kirana stores as our partners to deliver financial services is illustrative of our commitment to greater #Financialinclusion within the country, especially the remote and lesser connected parts of India.

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