A Neo bank is a digital bank without any branch. It is a Fintech offering that connects to its customers through mobile apps and websites. In India, Neo bank partners with a traditional bank to provide their services since RBI does not grant banking licenses to virtual banks. Typical services offered by a Neo bank are mobile deposits, payments, money transfer, and money lending.
Neo banks started post 2008 Global crisis as a challenge to traditional big banks. With an online and asset lite model, they were primarily targeted at the underbanked population. Getting banking approval takes substantial time in most countries, so neobanks usually start with a traditional banking partner.
In India, Neo banking started under the Digital India initiative and an RBI regulated model called Payments Bank. These Payments Banks were allowed limited deposits and withdrawals and no loans or credit card services. Currently, India has 7 Payments Banks in operation, including Airtel Payments Bank, Paytm Payments Bank, Jio Payments Bank.
A NASSCOM survey revealed that 75% of millennials either never visit branches or do so once a month or less. Currently, 65% of India’s population is under the age of 35. This population is tech-savvy and confident switching to mobiles for P2P transactions, bill payments, etc.
Market growth of neo banking
- Neobanking is projected to grow at a CAGR of 46.5% between 2019 and 2026, generating USD 394.6 billion by 2026 globally.
- Neobanks in India raised $116m in 2019.
- Many Neobank startups have raised seed rounds of $5m-20m without launching the actual products.
Opportunity of neo bank in India
- International Payments and Remittances
- Digital Onboarding and Account Opening
- Money Tracking and Account Aggregation
- Lending and Credit Products and more..
Most recognisable neobank in India
Niyo Solutions
Bank partner– yes bank, DCB Bank,
Incorporation– 2015
Funding– $49.2 million
Investors– JS capital, Horizon ventures
OPEN
Bank partner– ICICI bank
Incorporation– 2017
Funding– $37.4 million
Investors– Tiger global, 3one4 capital
Instant pay
Bank partner– ICICI bank
Incorporation– 2017
Funding– $4.0 million
Investors– RB investments, kaleden holdings
Payzello
Bank Partner – Laxmi Vilas Bank and Yes Bank
Incorporation – 2017
Funding – $117K
Investors – GenNext Ventures and Axilor Ventures
Does a bank without a branch give a sense of trust to you? Are you in sync with the idea of keeping your money completely digital?
The biggest obstacles faced by neobanking in India are the lack of a supportive infrastructure and the challenge of building consumer trust. Generating this trust would take tons of time and patience. Neo banks have their challenges like acquiring customers, relationship management, etc. However, just like Bill Gates said “Banking is important, banks aren’t .”
