By: Archita Srivastava
Digital banking has changed the definition of old-banking techniques, providing convenience to consumers.
You may be a lucky one if you have your bank branch next to your door, not everybody enjoys such privilege. Banking services, formalities, forms, passbook, bank queues etc, were never easy till we adopted digital preferences. The current pandemic has incidentally given a significant chunk of the population, what is popularly called the ‘lockdown blues’, adversely affecting all the sectors including bank timings and its services. Most of them are pushing the use of digital transactions during the lockdown. Digital habit gave an arc to the small or large businesses even personal usage related to banking aids. A swipe at your cell phone is considered a much easier option to interplay with amounts these days. Convenience is one of those concerns that a layman wishes for thus is driving towards online banking or say ‘Neo-banking’.
A Neo Bank could be elaborated as a new form of the digital bank which has no fellow branches. Neo-Banks are not only reinventing conventional banking activities and procedures but also replacing the traditional banking method. It has grabbed the attention of investors and entrepreneurs. These are effectively 100% digital banks providing services ranging from deposits, credits and payments without the pressure of a physical network, also appearing to be more versatile than any digital-savvy customer needs these days.
The Digital Layer
It was a time when for opening a primary bank account visiting bank was a necessary deal to make. Not only the traditional banking prevailed but the normal habit of getting Rs.2 toffees in return of change at Kirana stores was common. Now the scenario has flipped to scanning code and payment is done. The internet start-ups have created their own space in the fin-tech today. Paytm, the most trusted startup which has a number of users, policybazar, the sizeable insurance marketplace, GooglePay on the hand filling the gap of exchange of tangible monetary. The telecom sector too came up with the same idea as Airtel banking, Jio banking etc. Fantasizing ads also backed this idea of a start-up where ‘Paytm karo’ etc carved an impact to go digital and cashless. Neo-bank came later into the frame but with a better valuation and trusted partners. Its investors believe that none of these firms has an imperturbable position.
Anil Joshi, managing partner at venture capital firm Unicorn India Ventures said, “A single platform providing a digital layer for payments, accounting, expense management and short-term loans can be tremendously valuable”, reported in a news article. He cites the example of Open, one of his portfolio startups that offer accounting, lending and other services to small and medium businesses. Co-founder of epiFi Sujith Narayanan, who helped launch and oversee the expansion of Google Pay, said that startups will find it tough to become “everything for everyone”.
On 8th November 2016, when the Prime Minister Narendra Modi, announced demonetization crores of ideal paper money was flown in water and rest tried to be distributed. That sudden gap in cash and demands framed a vibe itself to go for cashless payments and digital banking. Not only demonetization, but government’s public policies are also no less behind in promoting digitalization with its program like ‘Digital India’ with a tagline to it ‘power to empower’. All these initiatives grabbed the attention of the public to digital banking even when a larger population is yet unbanked.
The most attractive customer-segment for neo-banks is the millennials who are more inclined than older people to switch bank accounts and purchase financial services online. The other ones are the normal employees who are not well served by traditional banks as they consider them a risky segment to lend to. Neo banks can have a “huge impact” on people who are left unserved by traditional banks and other financial institutions, said NiYO’s Vinay Bagri, for a news article.
Neo-banking FinTech players
‘Neo-bank’ was evolved by fin-tech players like Monzo and Atom Bank in the UK. From the past 5 years, the globe has turned the wheel towards digital banking. India is no less in the race, where the major contenders are holding the bridle of online banking. NiYo, Hylo, YONO SBI, Kotak 811 and Open are the major neo-banking fintech players in India. Rest of them launched in 2019 and funded are EpiFi, Jupiter.money, Juno, Kaleidofin and EZOTO, besides payments firm Razorpay, which also launched its neo banking arm, RazorpayX. These all offer diversified services in their specialized zone. They provide cashless banking, electronic payments, sector-by-sector digitalization, SME banking, accountability, building trust, reducing corruption in all sectors.
- NiYo Solutions is a Bangalore-based neo-bank helping salaried employees and blue-collar workers in accessing company benefits and other financial services. It offers its employees with Global card that enables employees on international travel to eliminate the need for employees to purchase a forex card. Also links a salary account when the employee registers with NiYo. In addition, a NiYo corporate, an employee benefits platform that comprises of a card and mobile app.
- Hylo, is an innovative solution designed to help small and medium-sized businesses simplify real-time payment against invoice through electronic transfer, cash payment and check collection. It allows buyers and sellers to build and monitor purchase order and branded invoices with the ability to incorporate via Open APIs (Application Programming Interface) with third-party applications or legacy framework. Its digital services assist SME’s in a manual collection system with real-time notifications and alerts also provides platform assisting B2B(Business to Business) in maintaining a threshold-based inventory and auto-matching of PO (Public Offering) against invoices.
- YONO (You Need Only One), is another integrated digital banking platform introduced by SBI (State Bank of India) to provide its customers with a variety of financial services such as credit cards, loans, insurance, investment and other services including taxi bookings, online shopping and medical bill payments.
- Kotak 811, banking app much like YONO where customers can open a bank account with a 6% interest rate, get a fixed deposit, virtual debit card, and access to other banking services.
- Open, another one offering business banking. It helps small traders automate bulk payments and digitize financial transactions. They have a link with major lenders, such as ICICI Bank, to offer small traders a wide range of business banking solutions.
Apart from the services these intangible banks provide they are in partnership with tangible banks to build their target audience and promote businesses. In a report, neo-banks in India raised $116 million in 2019, a seven-time jump year-on-year, according to data from Venture Intelligence. Another data from Tracxn, reported by the Bloomberg stated, at least eight neo-banks have raised $90.5 million in the past year. Major market holders remain Niyo Solutions and Open. The products and services of these digital platforms manage in maintaining their valuation high.
Neo-banking, a banking revolution?
When we are talking about Neo-banking and we come to its regulation, the Reserve of Bank of India does not regulate them, even they say them as ‘Neo-bank’ but are not independent banks as according to the Banking Regulation Act, 1949 restricts the use of word ‘bank’ by any individual firm or company. On the other side, the RBI doesn’t provide banking licenses to these firms. Some are still planning to apply for the same which is the toughest task to receive after the interim regulations on payment modes and banking methods. With the absence of regulations, the Neo-banks are operating in kind of regulatory grey area.
The progress of Monzo, Open, Starling Bank etc. likes, the CEOs are very hopeful about Indian FinTechs having traction in India. With competition growing among conventional banks, new-age FinTechs, technology firms, and non-bank players, it remains to be seen if the market is sufficiently large for neo-banks to expand sustainably and equally.
Once Bill Gates said banking is essential, banks are not. Neo-banks with innovative and user-centric features would be a major player in India in the coming years, the main reason being their ability to deliver banking for it’s digitalized audience.
Sources: Livemint, Bloomberg, TechnichalSpark blog, Wikipedia.
Image Credits:- Entrepreneur India