Can banks meet the neobank challenges in India?

Neobanks have grown significantly in India with the role of Fintech getting deeper. The definition of neobanks has changed as they are differentiating themselves from online banking services and moving away from being centred only around digital banking to focus on providing a superior customer experience. Neobanks are now being heralded as the future of banking. According to statistics, the global neobanking market size stood at $47.39 billion in 2021 and is estimated to grow at an astronomical rate (compounded annual growth rate) of 53.4 per cent from 2022 to 2030.

Neobanks have shifted their focus towards providing superior customer experience. Therefore, it is useful to identify the needs of such target customers which in turn have fuelled and sustained the growth of neobanking in India and worldwide. However, Neo banks or fintech companies are not directly regulated by RBI nevertheless, that does not mean that they are completely out of RBI's clutches. "These fintechs are indirectly under RBI's purview. It is estimated that there are more than 250 neobanks worldwide. Incumbent banks should focus on faster time to market for new products and services plus new ways to add value and increase loyalty with their customers, says Abdul Naushad, CEO of Buckzy Payments.

Neobanks’ use of cloud technology means they avoid having to spend heavily up-front on expensive IT infrastructure. With standardized open banking APIs, neobanks can build and bring to market products and services that enable faster, more frictionless fund transfers between account holders, other financial providers, and transactions with merchants. With these foundations in place - and sustained by a steady flow of private equity cash - neobanks are free to focus their time and effort on creating and launching easy-to-use current accounts and other products that prioritize a top-notch customer experience.

The rise of neobanks comes at a time when customers have become dissatisfied and frustrated with established incumbent banks for a number of reasons - a lack of transparency, an absence of useful new features, plus hidden or expensive fees for everything from overdrafts to closing your current account and moving to another bank.

Neobanks are squeezing the market share of older established banks from both ends: at one end, with personal accounts and other consumer-facing services, and more recently at the other end with business-focused offerings such as buy-to-let loans for property investments and bridging loans for small businesses. Neobanks were already in a strong position before the Covid-19 pandemic. But the consequences of the pandemic have created new opportunities for them.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA