India’s Neobanking Revolution: Changing The Game Or Just Watching From The Sidelines?

India’s Neobanking Revolution: Changing The Game Or Just Watching From The Sidelines?

SUMMARY

Neobanks offer a digital-only banking experience with mobile-first features, but their scope is limited in the Indian context

With no virtual banking licences in India, neobanks are forced to tie up with traditional banking partners

Will this hurdle be removed in the near future to set off the next step in the evolution of banking in India?

The term neobank first came into prominence in 2017 when fintech players and digital financial services providers were looking to challenge the hegemony of the traditional banking system. Drawing inspiration from the march of financial services and payments into a digital future, many startups looked to change the face of banking with their bold ideas and design-led approach to finance.Startups in the UK, US, China, Germany, Argentina, Brazil, Australia and other markets kicked off the neobanking wave, which is all set to crash on India this year.Agarwal says that by virtue of their strong modern branding and design-led approach, neobanks combine the innovation, speed and customer service quality of a startup with the trust, scale economies, regulation and network access of a traditional bank.“This means that a fintech can provide a small service as a layer on top of a bank’s existing account such as a personal expense management app, investment app, and other models. A neobank, on the other hand, gives users the modernised version of an existing bank service,” Turakhia said.Namaste Credit founder Gaurav Anand said neobanks are like the swiss-knife of the fintech world.“A neobank may also choose to apply for licenses such as for wallets or certain payment card models, or NBFC for lending. But globally, the UK and Singapore are allowing neobanks to apply for digital banking licenses.”“Regulations in India are very stringent but they’re getting better. Singapore recently started issuing digital banking licenses and I think India will follow soon. Neobanks becoming fully functional banks is very long shot until and unless the regulations change,” admitted Finin’s Gandham.“It is important to allow for consumers to be able to use data with other applications and service providers in a meaningful way to obtain services that a bank itself cant provide,” Turakhia added.“The sandbox will help neobanks collaborate with their banking partners and experiment on product and business model innovation in a restricted environment,” said NiYO’s Bagri.“A lot of startups are just using the term “neobank” for fundraising and valuation purposes, and are just providing an endpoint solution or feature. Unless there is true ownership of the customer experience, it won’t be as easy to make the economics work,” said Incrypt’s Nitin.

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