The rise of neobanks in India

neobanks in India

paytm bar code for cashless payment, during Digi Dhan Mela organized by Government of India to promote digital payment methods - pradeepGaurs

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India has a booming neo bank sector that has seen significant growth over the last few years. Neo banks are an emerging trend in financial technology, and the Indian neo banking market is no exception. What are neo banks, and how do they differ from traditional banks? How many neo banks exist in India, and what services do they offer? This article will provide answers to these questions and more.

Neobanks In India

Indian neobanks were first formally launched in 2015 with four major players: Paytm, Bajaj Finance Ltd., PhonePe (Jio), and Freecharge (Ola). Of these neo banks, two - JioMoney and PhonePe - have since been acquired by global companies looking to access India's burgeoning market for smartphones.

A neo bank is a bank that provides financial services to customers but operates online and has no physical existence anywhere. These services could vary from lending money, making payments, or transferring funds.

Some of the best-ranking neo banks in India are Niyo, InstantPay, Open, and RazorPayX. A neo bank is a perfect option for someone who wants to bank on their phone without having a physical branch in town. 

The financial sector is one of the fastest-growing industries in today's economy. As Zion Market Research reports, worldwide, this industry was worth $18.6 billion in 2018 and will grow at a CAGR (compounded annual growth rate) of 46% in 2019-2026, generating about $394 billion by 2026. 

What services are Neo Banks in India offering now? 

The Neo bank market in India is heating up, with ten banks currently operating and two more on the way. ICICI Bank took an early lead by partnering with three burgeoning players: Free, InstantPay, and Yelo.

Neo Banks give you a lot more flexibility through their inclusive and accessible services compared to traditional banks. Neo Bank services in India are currently limited to: 

  1. Saving and checking accounts; 
  2. Payments and money transfers; 
  3. Financial educational products

Although foreign banks provide digital-only products through their Indian subsidiaries, virtual banking licenses are still not issued in India. Unfortunately, the Reserve Bank of India is prioritizing physical presence when it comes to issuing new licenses for providers of digital banking services.

Neo Banks are revolutionizing the World of Banking with their innovation

The neo banks have changed the business model of traditional banking by introducing a fresh way for people to the bank. The apps that these companies offer allow customers instant account balance check, easy transfer from checking accounts into savings accounts- all while being safe as heck because there's no overdraft fees or hidden charges if one makes an error like withdrawing money before doing so should be made on purpose. 

No doubt, neo banking is the future of financial services, but it's not without its challenges. So what is the problem with neo banking? Well, first off, it's expensive and complex. They're still running on many old legacy systems from before that are hard to maintain and cost more than newer tech solutions would be. Plus, their data architecture isn't up-to-date and inadequate, and there is higher cost management and organizational resistance as well. 

Furthermore, the consumer's opinion also matters if their common concerns on banking services go unaddressed. This will have direct consequences not only just on customers but also by tarnishing the organization's image. 

The truth is there just aren't any real incentives or rewards outside of a promise not to charge fees anymore if customers use these banks, but at this point, who cares about those? What we care about right now is how crappy our bank services have become since switching over.

The neo bank was founded with the goal of making banking easier. They are a tech-savvy decision-making model and handle cash more easily and openly, which is why they have become so popular in recent years. These banks gather data about their customers to understand trends like how much money people make on average each month or what kind of products they buy most often; then come out with predictions that help them keep up with their customer's needs better than ever before.

Neo banks achieve a better customer experience with the following features: 

  1. A new account can be activated within minutes; 
  2. Connecting existing bank accounts to your Neo account is easy and free of charge; 
  3. Receiving payments are instant with integrated payment gateways; 
  4. Bills can be processed through multiple options; 

How Do Neo Banks Operate In India?

A Neo bank is more than just the app you use to store and transfer money. These offerings are limited in India compared to traditional banks. Neo banks in India are restricted by the Reserve Bank of India's 2014 guidelines. They cannot hold customer deposits or provide loans, and they always need a partner bank with an actual physical presence that can do these things. 

Despite this, neo banks are flourishing in India—thanks to a major shift due to the digitization of services due to the pandemic. Additionally, neo banks are further attractive as they incur lower overheads and can cut fees for their customers. This is because traditional bank's operating costs do not require any physical presence-related expenses, allowing them to offer more competitive rates without having higher overhead costs from leasing locations or hiring additional staff members.

The Future of Neo Banks in India and Budget 2021

The Indian finance minister's budget has been focusing on improving the ailing banking sector and recognizes the growing success of fintech firms. The finance minister announced an investment of Rs. 1500 crore (US$210 million) to encourage digital payments and support fintech companies in the future—including Neo Banks, which have grown significantly over the last five years. The move will encourage more consumers to adopt digital payments. The FM also announced plans to establish GIFT City (Gujarat International Finance Tec-City). This recognizes how important fintech firms, such as digital banks, are in banking and the need for Fintech hubs throughout India.