Applications to applications: a new era of banking


Ritesh Batra is not a new customer of the bank. A seasoned professional in the financial sector, Batra has used ICICI Bank’s savings account and credit card for several years now. But, when Batra wanted a new bank account and credit card to exclusively handle his utility payments, he didn’t contact any of the traditional banks.

Instead, he used the Fi neo-banking app to open an account with Federal Bank and the OneCard app to get IDFC First Bank’s credit card. “I wanted to check if it’s really possible to open a bank account and get a credit card without the hassle or paperwork. I am quite impressed with the result, ”he said.

Batra is not alone. With the increase in online consumerism and the demand for personalized experiences, several digital millennials, Gen Z users, teens and new banking consumers, the odd-job economy and blue-collar workers are increasingly turning to neobanks for banking and financial needs.

“Today, many banks only focus on transactional elements such as account opening, loans, deposits, etc. There is no personal connection in the digital age,” said Sumit Gwalani. , co-founder of Fi. “At Fi, we add value beyond transactions by helping customers understand finances, answer their questions and help them save more,” he added.

Gain traction

Neobanks, which are online-only fintechs with no physical presence, have gained traction around the world in recent years. While traditional banks also offer digital banking solutions, neobanks address a particular aspect of banking such as opening an account, saving or investing by delivering a superior customer experience through product innovations and leveraging of technology.

For example, Fi not only provides a seamless account opening experience, but also demystifies financial jargon. A user can simply use an “Ask.Fi” digital financial assistant to find out how much he spent on ordering food this month, or with the help of the automatic robot, FIT, set rules to save money automatically for predefined conditions.

Retracing Niyo’s Journey

Likewise, the digital banking fintech Niyo started with a single product – a social benefits card – in 2016. Today, it has four main sectors of activity: NiyoX (bank accounts in partnership with Equitas Small Finance Bank) , Niyo Money (wealth management), Niyo Bharat (prepaid cards for blue collar workers) and Niyo Global (zero margin forex card for international travel). It serves approximately 2.3 million customers and more than 7,000 businesses through these products.

“We launched NiyoX in March-April this year and have already opened a million accounts to date,” said Swapnil Bhaskar, head of strategy at Niyo.

NiyoX offers the “007 banking” feature which refers to a zero percent commission on mutual fund investments, “zero” account maintenance fees and up to seven percent interest on balances. accounts. The company plans to onboard two million customers by the end of 2021.

Through its partnership with Equitas Bank, NiyoX also promises an account opening in 100 seconds. This agility and product innovations also help traditional banks improve their customer base and generate more revenue.

In its latest Federal Bank report, Emkay Global said, “The bank is gradually transforming into a next-generation private bank to attract digital natives and millennials through its neobank offerings. This should help it to be competitive and prosper while generating better fees and income. “

Likewise, in the case of Equitas Small Finance Bank, Emkay Global said its CASA is now at an all-time high of 45% thanks to strong client acquisition through branches and neobank mergers. “Currently, it is estimated that around 60% of savings accounts are opened online. We predict that around 80 to 90 percent will occur in the next two to three years, ”Bhaskar said.


Although neobanks cover a wide range of financial products, they also face several challenges, the main one being the lack of licensing or regulatory support. There are over a dozen neobanks in the country, including RazorpayX, Open Financial, Niyo, FPL Technologies (operates One Card), EpiFi Technologies (operates Fi), Jupiter, Instantpay India, Freo, among others. While some focus on the consumer side, others target the MSME segment.

The lack of a license also prevents them from accepting deposits or making loans, thus excluding them from higher income opportunities. Fees, commissions and other transaction costs remain their sources of income.

“Their operating model has yet to show sustained profitability,” PwC said in a recent report on neobanks.

“At the end of the day, in the financial world, you only make money by lending. You make little money selling insurance or investment products, but the maximum income comes only from loans, cards or buy it now, pay back products and we are a pioneer in this area ” , said Anuj Kacker, co-founder of Freo.

Launched as MoneyTap in 2016, Freo is India’s first credit-focused neobank. The fintech, which is backed by a licensed NBFC MoneyTap, also partners with banks and other NBFCs to offer products such as lines of credit, credit cards, EMI cards, deposits and savings. , BNPL products, etc.

“We have disbursed nearly 6,000 crore over the past five to six years. Our customers have doubled over the past six months, while transaction / disbursement volumes have also doubled over the 12 month cycle, ”said Kacker.

What’s in store?

Following the recommendation of an RBI task force to regulate digital banking, Niti Aayog recently proposed the creation of “full stack digital banks”. Such a move, if authorized, will allow neobanks to provide loans, deposits and other banking services to MSMEs. “In the absence of a licensing regime, the fintechs proposing the neobank proposal in India have improvised and adopted the front-end neobank model,” said the discussion document.

Industry players say the document is a first step in filling the regulatory void. “Niti Aayog’s recent article is a good start as it talks about neobanks as a separate category,” Gwalani said, adding: “The RBI has always been at the forefront of forward-looking policies and we expect that. opening of potential digital banks as an upgrade for neobanks.


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