EMERGENCE OF NEO BANKS - Naman Gupta

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With technology encroaching almost all facets of our life, the emergence of a form of banking system operating without a physical infrastructure hardly comes as a surprise. This model is currently being used by neobanks or new-age banks. The names of established players in this segment like Razorpay, FamPay, Fi, etc. have become quite commonplace. So what exactly has led to them taking the industry by storm in the last five years?

I believe the regulatory environment and the additional layers of functionality offered have made them a phenomenon. Neobanks don’t need to obtain licenses. All that is required for them is to partner with a traditional bank already having a license. Neobanks were able to come up with solutions to problems that have been prevalent in the banking industry for a long. One such problem was the high cost of international transfers and neobanks have come up with low-cost solutions for the same. The age of big data and analytics help these banks to offer personalized services to their customers by keeping regular track of their expenses, giving rewards on achieving their savings targets, etc. All this is coupled with a user-friendly interface.

What lies ahead for neobanks? I believe that tapping into the rural market can act as an engine of growth for these players. The rural sector is still plagued with a lot of problems in the form of lack of last-mile connectivity of traditional banks, lack of collateral, and difficult credit evaluations. The pandemic has given rural inhabitants the nudge they needed to embrace this sort of an offering from neobanks.

With increasing digital penetration and attractive pricing prevalent due to increased competition in a single online offering model, the future looks bright for these banks. However, what remains to be seen is how these banks are going to respond to prospective changes made in the industry by RBI. In case customers start flocking to the neobanks more, cutting out on a share of customers for traditional banks, will any bank show interest in the future to partner with them? I can’t wait to get the aforementioned questions answered in the coming years. What is certain is that customers will emerge as the winners of this symbiotic/competitive relationship.

 

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