Neobanks - changing the financial landscape

Neobanks are changing the financial landscape through their low-cost offering & technology, giving intense competition to traditional banking. Quoting the statement of Bill Gates, way back in 1994. Banking is necessary, but banks are not. Neobanks are new entrants into the banking industry. They are also known as fintech companies or financial technology companies. A simple example of how they differ from traditional banks is neobanks do not charge any fees for opening an account. Ideally, traditional banks charge a monthly fee for maintaining a budget.

It offers a fully digital banking solution at a discounted cost due to the considerable savings in operating costs. This is attributed to zero physical branches & no spending on the workforce to man those branches. Some of the services include international payments, money transfers, or lending credit. Some new banks also partner with neobank to offer the services that help them provide both online & offline banking services. Fintechs have played a significant role in fulfilling this vision. We have witnessed, contactless banking was felt by the people more than ever before. People moved away from traditional banking & physical cash with more & more interest in online banking & wallets. It is estimated that the South Asian nation has 6,386 fintech firms. In total, 28% of them are in investment tech, while 27 percent belong to payments, 16% of them are involved in lending, according to the report. The three segments comprise nearly 70 percent of the fintech industry in India.

Although 9% of fintech companies offer banking infrastructure, the remaining are distributed across different areas such as insurance and Neobanks. India is the fastest-growing digital payments market and firmly on course to emerge as a major less-cash economy. Technology has been a key catalyst, with user-focused advancements aligned to shifts in consumer behaviour.

Today, for a contactless payment solution, all one needs is a smart device and an internet connection to make transactions happen; the everyday smartphone has transformed itself into a wallet as well as a merchant Point of Sale terminal. India has now positioned as the third largest fintech ecosystem in the world after the US and China, the Indian fintech market is poised for further disruption with the emergence of neobanks. A recent report said, the $31 billion fintech market in India is set for a disruption with the emergence of neobanks and to scale and secure a foothold, these digital-only banks should acquire primary bank accounts.

The salary accounts of white-collar employees with a lifetime value of 10 times seem an addressable market and the best way forward. In addition, there is said to be an opportunity to address about 25 million additional accounts of new professionals every year. The estimated 120 million professionals (steady income earners) currently represent around 80 per cent of the addressable banking ARPU or average revenue per user, said the report by Bengaluru-based management consulting firm Redseer.