Neobanks: Revolutionising Banking in India
Think of a traditional bank in a remote part of India. What’s the image that immediately pops up in your mind? Never ending queues, unbearably long waiting hours, dusty files, sluggish staff sipping tea and munching on snacks...
Well, the picture is true to a certain extent. But of late, the banking sector in India has seen a disruption of sorts with more and more private and digital banks leading the sector, coupled with the rise of internet banking, mobile banking, digital payments and more.
And the latest entrant in this banking revolution are neobanks.
What Are Neobanks?
Neobanks are essentially digital-first branchless banks, which provide a host of financial services, including payments, receivables, credit card, budget and spend management, payment gateway, book-keeping, bill payments and collections.
These usually partner with traditional banks to offer better financial and banking solutions by using the latest technology such as artificial intelligence (AI) and machine learning (ML).
As per PwC, the global neo-bank market is expected to grow at a compounded annual growth rate of around 46.5% between 2019 and 2026, generating $394.6 billion by 2026.
Moreover, the ongoing pandemic and social distancing norms has provided a renewed push to digital banking.
Thumbs Up for Neobanks
Their agile and lean business models owing to lack of physical branches and low capital investment, allow neobanks to provide higher rates on saving and fixed deposits, a seamless mobile experience, greater transparency and deeper consumer insights.
Some up-and-coming neobanks in India include Open, RazorpayX, Niyo, and Payzello
- Customized, Personalised Solutions: Neobanks greatly focus on customer experience and satisfaction. With the use of technologies such as AI and ML, neobanks provide a highly enhanced and personalised customer experience, which traditional banks infamously lack.
2. Higher Rates on Saving and Fixed Deposits: Most traditional banks in India are bogged down by legacy infrastructure, processing costs, high customer acquisition costs, dependency on human resources and the old fashioned branch network. In case of neobanks, lower costs owing to the digital-only presence and low capital investment allows them to grant higher rates on various savings and fixed deposits.
3. Process Automation and Real Time Services: Neobanks provide near real-time services for account opening, opening and redeeming deposits, payments, balance checking and other financial services.
4. Round the Clock Support: Most neobanks seek to provide 24x7 support via chatbots, thus enhancing the customer experience.
5. Transparency: Emerging neobanks in India aim to simplify the banking experience for every strata of society by ensuring transparency and providing real-time notifications and updates of transactions, charges and penalties incurred by the customer.
6. Deep Insights: Neobanks often make use of AI and ML to provide valuable insights to the customers, generate reports with insights into their spending pattern and saving behaviour and subsequently suggest investment plans.
Leading the Banking Revolution in India
The Modi Government has time and again reiterated its commitment towards greater financial inclusion in the country. However, reaching out to the underbanked remote and rural parts of the country has remained a key challenge.
Needless to say, any attempts at ensuring financial inclusion and independence will only be half-baked until all, especially the low-income households, gain access to credit at affordable costs.
It is here that neobanks come into play.
Neobanks seek to combine a user-friendly, tech-savvy interface with a low cost structure as they seek to cater to Ministry of Micro, Small and Medium Enterprises (MSMEs), small businesses, startups, individuals with little or no credit history and unbanked segments of the society that are often overlooked and considered unprofitable by traditional banks. This, in effect, helps bridge the gap between urban-rural/rich and poor.
With over 63.3 million MSMEs in India looking to get digitised financially, the time is ripe for neobanks.
According to Omidyar Network and BCG report, only 47% Small and Medium Businesses (SMBs) have adopted digital tools for business processes, payments, and online sales, and it is estimated that digitalisation of SMBs could expand their contribution towards India's GDP by 9 percentage points - effectively close to 45%.
Much like small businesses, gig economy workers and contract workers are also prospective customer base for neobanks. According to a report by FICCI, EY and Nasscom, India leads in the online labour market globally with 24% share.
Many neobanks are also targeting college students and young professionals to become their first bank.
In sum, neobanks seek to democratise financial services for all sections of the society and promote financial inclusion, literacy and wellness amongst all. And some emerging neobanks in India like BranchX strive to provide a seamless digital experience with a human touch and accessible to all spheres of society, across the nation. Thus, simultaneously positioning themselves as disruptors and enablers for all in the banking sector in India.
BranchX, India's first theme-based emerging neobank, is launching a smart banking app as well as a banking-for-all product.
At BranchX, we make use of high levels of process automation and services to provide an efficient yet effortless banking experience to our users thereby ensuring financial independence for all across the society.