Neobanks are bridging the gap between the services that traditional banks offer and the evolving expectations of new-age tech-savvy customers in the digital age
Easy banking processes, including less paperwork, more value-added service, more reliance on effective digital medium of communication, e-commerce, and digital payment services has been the deciding factor in the growing popularity of neobanks among the younger generation.
Given this, traditional banks are now also targeting new-age customers through neobanks, according to a recent report by Redseer Strategy Consultants.
At present, the Reserve Bank of India (RBI) does not allow banks to be fully digital in India. Neobanks cannot obtain their bank licenses and will have to be dependent on their bank partners to offer licensed services. Neobanks, such as Jupiter, Fi, Niyo or RazorpayX—are now working in partnerships with traditional banks as the consumer-facing layer.
In one of the most recent partnerships, OneBanc Technologies, an AI-driven neo-banking start-up, partnered with Visa, a global forerunner in digital payments, in a bid to issue India’s first debit and credit card without a magnetic strip.
Also, Federal bank recently opened more than 300,000 accounts with neo-banking partners.
Similarly, fintech company, Niyo, in association with SBM Bank India and Visa, is now offering a digital savings account with Niyo Global.
ICICI Bank, too, has joined the bandwagon through a collaboration with Niyo to roll out prepaid cards for people working in Micro, Small & Medium Enterprises (MSMEs).
The report noted that a collaboration between neobanks and traditional banks will offer a win-win situation for both. Traditional banks can access new-age tech-savvy customers, while neobanks can get a strong foothold in the market because of the reputation already established by these traditional banks.
According to the report, the Indian fintech market, which was valued at $31 billion in 2021, is poised for further disruption with the emergence of neobanks. Personalised experiences, data-driven insights, better UX, and value-added services will help neobanks solidify their base with India's retail banking customer. Neobanks are just beginning their journey in India, and there is tremendous potential for growth, the report said.
The report further noted that neobanks should acquire primary bank accounts if they have to scale and secure a foothold. The opportunities are huge, about 25 million additional accounts of new professionals every year can be added every year, the report said.
Salary accounts of white-collar employees with a lifetime value of ~10X are an addressable market and the best way forward, according to the report.