Understanding Neo Banking In India

We keep hearing about Neo Banks these days. Here is a small write on what they do and their current landscape.

Neo Bank is a new type of digital bank that exists without any branches. They are primarily fintech firms providing digital and mobile-first financial solutions services to modern tech-savvy customers. These include payments and money transfers as well as lending through online platforms and apps. Neo banks are reinventing the practices and processes associated with traditional banking.

This new-age banking emerged about 5 years ago, namely in the UK through FinTech players such as Monzo and Atom Bank.

Neobanks don’t have a bank license of their own but count on bank partners to provide bank licensed services. For example – Niyo solution tied up with Yes Bank.

Difference between Digital Bank vs Neo Banks

Digital banking usually refers to a bigger player in the banking industry providing financial services in a traditional way. Neo banks are 100% digital and do not relate to any traditional banking names, big or small.

Advantages of Neobank:-

  1. Easy account creation
  2. Seamless international payments
  3. Customer friendly interface
  4. Value added services like bookkeeping, financial management etc

Challenges faced by the Neobank:-

  1. Targeting customer segments
  2. Arriving at best market-fit product for the customer segment
  3. Partnership with traditional bank
  4. Technology challenges – core banking systems used by most banks do not meet some of the expectations for modern digital services

Regulatory norms for Neobank: –

In India, RBI is still not granting Banking licenses to virtual banks. Currently, Neo Banks are outsourcing their banking responsibilities to those with licencesiecreating strategic partnerships with traditional banks.

Focus Business Segment for Neo Banks in India: –

Neo Banks main focus are especially young generation who are digitally savvy consumers and who don’t want to deal with traditional banks due to lack of flexibility. This generation wants to compare online loans, submit their application with a few clicks, and receive approval in a matter of minutes. And this is exactly what neo-banks offer them: speed, friendly customer support, and relevant services. Neo-banks are all about convenience and respect for the customer’s time. Some of the players are available in both B2B and B2C segments.  In terms of customer base Niyo – one of the leading Neo bank has ~ 1 Million customers and B2B leading player Open has ~ 0.4 Million customers. Below are the details of some B2B and B2C players.

B2B companies Product feature offering

Retail companies Product Feature Offering

Funding Details of Indian Neo Banks: –

During the period of Q1’20, India fintech companies has raised $421 M. New-born Neo Bank – Jupiter which is founded by Citrus pay co-founder raised $ 2 M on Apr-20. Below are the more details of Neo Banks funding: –

Neo Banks and their Banking Partners

Neo-Banking Future Prospects: –

Credit to GDP Ratio in India is 50% where as it is north of 100% for developed countries. Credit reach definitely needs to improve in India. More bank licenses is surely one way but a thought on giving a systematic push towards digital channels of fulfilling the credit need of the country may go a long way. Moreover, the recent Covid situation has underscored the imperative of quickly scaling banking and credit services to consumers and small businesses.

According to a report published by Allied Market Research, the global neo bank market is growing at a CAGR of 50.6% during the period 2017-2020. Thus, e can confidently say that they are here to stay and grow the pie of the borrowing customers.

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