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The booming economy of Indian neobanks

Neobanks have evolved and grown tremendously both globally and in India. The concept of neobanks has evolved as they differentiate themselves from online banking services and shift away from focusing just on digital banking to focusing on providing a superior customer experience.

Technological breakthroughs, new models, and a niche customer-focused approach have aided neobanks in the development of technology-based platforms and agile business models, as well as the delivery of innovative financial services.

Such improvements enable neobanks to reach unserved and underserved parts of society and provide them with bespoke portfolios of services tailored to fulfill their financial needs, both in retail and in the enterprise.

In India, neobanks and the majority of their product offerings are not explicitly regulated. They are, nevertheless, subject to indirect regulations (through collaborations with regulated businesses), ensuring that their product offers to adhere to the regulatory norms.

To ensure that the industry matures further, rules must grow gradually in tandem with its advancement. And the neo banking space grows more stable as new business models/products are introduced, the segment may require its own rules to monitor the market.

With the introduction of a growing number of neobanks in the country in recent years, the Indian financial services sector, particularly banking, is on a transformational road.

The constant challenges faced by the Indian banking sector, such as last-mile connectivity, bringing millennials into the banking domain, facilitating branchless banking, providing seamless banking experiences, and so on, are quickly becoming a thing of the past, as the core business model of neobanks addresses these issues from the start.

With the bridging between the neo banks and the financial institutions, the system is transforming to a customer-centric model rather than a customer-led model.

Some of the obvious factors to the booming economy of neobanks in India, which syncs with their global expansion, are disruptive and creative technology, digital-only presence, accommodating regulatory climate, and so on.

Originally, a neobank was defined as a bank with no physical presence that operates entirely online and interacts directly with customers. A neobank seeks to be more than just another bank by providing a better digital banking experience.

This concept has developed as neobanks sought to differentiate themselves from incumbents’ online banking services, shifting from a focus only on digital banking to a focus on offering a superior client experience. This trend is not exclusive to the neobank subsegment.

The bigger FinTech industry has always prioritized digital technologies and client happiness as its two guiding principles.

Neobanks’ focus has turned to provide an excellent client experience. As a result, it is beneficial to understand the needs of such target clients, which has fueled and sustained the expansion of neo banking in India and around the world.

The banking sector in India is one of the most severely regulated in the country. Banks in India devote significant resources (in terms of time, labor, and money) to ensuring compliance with applicable rules.

To remain compliant with the continuously changing regulatory landscape, Indian banks have also adapted to the new realities of the digital era and implemented cutting-edge technology and processes.

In the banking industry, there has been a growth in the usage of cutting-edge, tech-enabled solutions during the previous decade. These technologically assisted solutions have also given rise to new business models in the country, such as neobanking.

Who gets access to the neo banking system:

According to The evolution of neobanks in India report, access to financial services is a critical requirement for both retail and micro, small, and medium enterprise (MSME) consumers. Neobanks have discovered untapped consumer categories like tier-2 and tier-3 rural areas, as well as digital millennials.

While banks in India are obligated by regulatory organizations to focus on the unbanked/underbanked population and do so predominantly in tier-2 and 3 rural segments, millennials, who make up a sizable portion of the unbanked/underbanked population, receive little attention. Because they are technologically aware and have expressed an interest in financial products, neobanks play a critical role in meeting their requirements.

The bulk of MSMEs in India continues to rely on informal financial services to obtain their finances. MSMEs owe a total of INR 69.3 lakh crore in debt, INR 58.4 lakh crore of which is from informal sources.

Why the industry is customer-centric:

Customers nowadays want products that may be tailored to their unique needs in terms of quantity/ticket size, tenure, and pricing. Such product developments necessitate dynamic technology and delivery solutions that allow start-ups to successfully manage unit economics while offering a diverse range of goods in terms of quantum and pricing (e.g., micro ticket-size loans/investments and short-tenure credit).

Traditional banking methods are typically unable to provide such flexible financial solutions due to the inflexible cost structures under which they operate.

Customers today get a hold of improved facilities in a variety of service sectors, ranging from commerce and shopping to logistics and travel, and this has led to comparable expectations of convenience from financial services.

The core service pillars of rapid information availability, easier data and request recording, and customised points of service delivery (e.g. credit line at the point of sale [POS] terminals) have become increasingly commonplace and are expected from mainstream financial service channels as well.

Neobanks are growing because they are bridging the gap that is present in the traditional banking systems. Also, one main factor behind neobank’s growth is that it is customer-centric that is they are driven by the needs of the customers.

Advantages of Neobanks:

Neobanks are the ideal solution for people to manage their funds since they want to access everything with just a touch of a button. Everyone wants to take advantage of the benefits that neobanks provide, such as the lack of monthly fees, withdrawal costs, the capacity to conduct international transactions, and so on.

The lack of a physical branch also provides the added benefit of higher interest rates on savings which is another reason why people want to shift to neobanking systems. Furthermore, there is nothing like the simple method of obtaining a loan through neobanks.

Neobanks provide real-time updates on payments and balance checks. International payments, which are frequently required by many platforms, are handled flawlessly by neobanks, who provide international payments at interbank rates through multiple banking and payments partners.

The main benefit of neobanking also includes benefit also include 24*7 customer assistance and smart chatbots with a solid database that can handle all client inquiries at any time of day.

The notion of Neobanks is still relatively new in India, but it is gaining traction. Neobanks is the future because of their numerous benefits and the preference for anything online.

Neobanks in India:

InstantPay

Individuals and organizations of all sizes can use InstantPay‘s full-stack financial services. Every day, a million transactions are expected to take place at the bank. It offers speedy activation, money tracking, and cash deposit capabilities with its personal, commercial, and inclusive banking solutions. InstantPay Neobank provides customer service 24 hours a day, 365 days a year. InstantPay is a mobile and web-based payment solution.

Its API banking platform is a cloud-based solution that can handle transactions ranging from zero to one million per day. InstantPay is a digital account that anyone may open, making it a viable substitute for wallets and traditional bank accounts.

Jupiter

Jupiter Money, in cooperation with Federal Bank, offers a no-fee, zero-balance savings account. It was founded by people you can trust, such as Jitendra Gupta, the former CEO of Citrus Pay, which he sold in 2016.

Jupiter offers a free VISA Signature debit card with no joining or annual fees. It also offers 1% cash back on debit cards and UPI purchases from approved merchants, as well as 5% cashback on international transactions (3.5 percent forex charges).

Niyo

Niyo, a neobank created in 2015, has over a million customers from various businesses, as well as Indians who travel internationally. Because the neobank was formed with salaried people in mind, Niyo devised methods to assist them to get the most out of their money.

Users can utilize the bank’s digital platform to, among other things, pay bills, transfer funds, make online purchases, access ATMs anywhere in the world, and track their spending habits. The Niyo team, which numbers over 800 people, is made up of bankers, young technocrats, and subject matter experts.

DigiBank

Digibank, which launched in 2016, offers clients fully online savings account with quick onboarding, more manageable payments, improved security, and rewards. They include a Universal Banking Remote, which lets the user to connect to the bank account to digibank and use the built-in Soft Token for safe login.

Zik Zuk

ZikZuk is a neobanking platform that promises to give small enterprises with a financially viable and scalable environment. It equips entrepreneurs with the tools they need to make data-driven decisions. Founders can use the platform’s credit cards to improve their credit, get prizes, and evaluate AI-generated reports.

It also enables businesses to quickly meet their credit needs with the Unsecured Credit on Card facility and improve efficiency with connected banking. ZikZuk’s Business Finance Manager tool supports SMEs in focusing on growth while also receiving improved financial information.

Mool

Mool is a neobanking app that focuses on wealth management, savings, and investments, by providing cutting-edge banking facilities. The platform allows users to open smart savings accounts with no minimum balance, set savings and investing on auto-pilot, and use curated smart plans with tailored insights.

Mahila Money 

Mahila Money, formerly known as Sheroes Money, is a neobanking software that offers a secure women-only network. Here, women may open bank accounts digitally, acquire financing to help their small or large company ideas take off, and start their financial journey while receiving financial counseling and support.

Future

The notion of Neobanks is still relatively new in India, but it is gaining traction. Neobanks is the future because of their numerous benefits and the preference for anything online.

It is estimated to raise an amount approximately to $400 bn by the year 2026. The adoption of fintech in India is high and the annual rate of return on investments in fintech startups is high too.

The future of the neobanking industry is hugely dependent upon its customer base, cyber security, awareness, API Integration, and an overall hassle-free experience.

Virtual call centers, online account opening procedures, loan automation, and automated/chat-based customer care are all on the horizon for the financial services industry. With their technological skills, neobanks have the potential to serve as a digital front-end to basic banking products.

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