- Neobanks, also called smartbanks and challenger banks, are digital-only banks with no physical bank branches. These banks present an alternative banking option to other traditional financial institution incumbents.
- There are two main groups of NeoBanks. There are the companies that have no banking licence and only offer the customer a relationship-side service, either using a traditional bank for processing transactions or in a partnership mdel. Such companies focus on the value they can offer on a better user experience. The second model involves those who seek to become all-in, 'one-stop-shop' banks from the outset, but without branch-based distribution channels and set up as mobile banks. Banks of this kind must obtain banking licenses, which in most countries is a complex process and comes at great financial cost.
- Confidence in the banking sector has reached historically low levels, presenting an opportunity for a new kind of digital-only financial institutionto emerge, capitalising on the resentment felt towards the industry's incumbents.
- Neobanks don't integrate new technology solely for the sake of being cutting-edge. By getting rid of physical branches and moving everything online, neobanks often save on the costs of banking, allowing them to cut fees and expand services to the underbanked.
- In India, with a lockdown (owing to the ongoing Corona virus pandemic) of more than two months and all businesses at a standstill, digitisation has been given a massive boost. All the companies have shifted their workings online and banks which were operating physically also have had to shift their operations online. With the current scenario, a major shift in the post-Covid era is expected as all kinds of financial services are seen being carried out online.
Neobanks in India
- The neobanks segment is rising in India, and they have raised $90 million in 2020.
- Currently, there are 10 neo banks in India while some more are expected to start their operations soon.
- It has been reported that India's banking system would benefit from some form of modernisation and reform. It is alleged that a series of corruption scandals, and an excess of bureaucratic red tape have affected the sector over an extended period of time.
- Three key strengths of Neobanks include: Unique Customer Experience - The customer gets to interact with banking services in a unique and much-improved manner. Neobanks are capable of providing a highly enhanced and personalized customer experience, which the traditional banks famously lack. Transparency - Neobanks are transparent and strive to provide real-time notifications and explanations of any charges and penalties incurred by the customer. Deep insights - Most neobanks provide solutions with user-friendly interfaces and easy to understand and valuable insights for services such as payments, payables and receivables, and bank statements.
- InstantPay - Delivers full stack banking services to individuals and businesses of all sizes. The bank is said to process a million of transactions daily. With personal, business and inclusive banking solutions, InstantPay offers instant activation, money tracking and cash deposit features. The neobank has provisions of round the clock customer support, 365 days a year. InstantPay can be used on the web and mobile. Businesses can integrate InstantPay’s API with their business applications or accounting systems. Its API banking platform is a super scalable cloud platform that auto-scales from zero to a million transactions in a single day. Businesses can play around and safely validate code with a sandbox mode before hitting the production environment. This challenger bank’s Indian banking partners are ICICI Bank, Axis Bank, IndusInd Bank and Yes Bank. Individuals can open a digital account with InstantPay which is a good alternative to wallets and traditional bank accounts. Startups and SME businesses can open a Smart Bank Account. Large enterprises can avail scalable and cost-effective solutions offered by InstantPay. The InstantPay Digi Kendra service offers basic banking, insurance, and travel booking facilities, among others.
- Niyo - Since its inception in 2015, Niyo caters to the needs of over a million customers across blue-collared sectors and to Indians that travel globally. At conception, the neobank targeted salaried employees and created solutions to help them get the most out of their salaries. Presently, Niyo helps users spend smartly and safely overseas.
Users can pay bills, transfer funds, make online purchases, access ATMs anywhere in the world, and track their spending habits, among others, which is supported by the bank’s digital platform. With a team strength of over 800, the Niyo team comprises of bankers, young technocrats, and individuals that bring in deep domain expertise. The Niyo IDFC First bank is an account, an app and a card. The bank offers a host of features like interest rate provided on a savings account, zero per cent commission on mutual funds investments and zero per cent on forex.
In May, the neobank announced its ‘Niyo Pathshala’ initiative for India’s labour force to provide financial literacy. As part of the digital initiative, the company is educating individuals on the benefits and features of branchless banking.
- Open - Bengaluru-based Open began its FinTech journey in May 2017. Open is a neobank that offers small businesses and startups an online bank account and a credit card that combines banking, payments and accounting in a single place. As a neobank for businesses, Open solves the pain points business owners go through with the current banking system.
By signing up on Open, businesses can get an online bank account plus a business credit card and a bank account to start collecting payments within two minutes. This account enables SMEs to start collecting payments instantly without any limit on the collection. Invoices can be generated and payment links to customers can be sent.
Open’s payment gateway API can be integrated with the website of businesses where customers can pay during the checkout process. E-commerce platforms can integrate Open’s plugins to their websites for payment collection.
In June 2019, the neobank raised $30 million in its Series B round from Tiger Global, Tanglin Venture Partners, 3one4 Capital, Speedinvest & AngelList Syndicate.
- RazorpayX - RazorpayX is the neobanking platform of India’s newest unicorn Razorpay. The neobank has served over 10,000 businesses – processing their payroll through Opfin, paying for expenses through Corporate Card, and paying the vendors of businesses in real-time, disbursing billions of dollars through the underlying payouts layer.
Fully-functional current accounts on RazorpayX can be opened by customers and operated. RazorpayX Current Accounts come with standard banking features such as cheque book, debit card, and account statements. The platform has capabilities such as API banking, approvals workflow, and insightful reports.
With RazorpayX, e-commerce businesses can make instant refunds to credit cards, bank accounts and UPI ID. Also, businesses can automate the refund process by creating refund requests through API or the Dashboard.
RazorpayX automates refunds of Cash on Delivery (CoD) orders with Payout Links. Payout Links helps automate the entire process of making a refund to a customer within minutes.
- Some other neobanks and fintechs in India include, Jupiter, Epifi, Fold Money, Mavrik, and Juno.
Available Information - Initial research has found available data and information online for the following areas:
- Target Customer Segment - This is available mostly through both company websites, as well as online articles. For example Open specifically target small business customers and advertise their services as being trusted by over 800,000 such companies.
- USP to customers - As neobanks and their digital infrastructure continue to grow, the benefits are well reported. Enchanced by the ongoing Covid-19 pandemic, and in the face of growing competition, many neobanks are focusing on providing detailed information about what seperates them from their competitors as well as traditional financial institutions.
- Current Customer base - Much market research exists and neobanks themselves have mostly documented details about the size and demographic of their customer base, as well as details about volumes. Examples include InstantPay's declaration that they process 1 million transacations daily, have 10 million active consumers per month and process $1 billion worth of transations quarterly.
- Partnerships and terms - Some information has been discovered about the specific details of partnerships for some of the top neobanks in India. More research is needed to see what extent the rest of this information is available.
- Products - All banks publish a list of available products. This can be used to compare and contrast the types of services offered and also help distinguish the target segments. In some cases the number of products and the volumes for each bank are available, but to what extent this is covered requires further research.
- Screenshots of the app/website are available and can be provided.
- Customer Surveys - Some limited customer satisfaction information has been identifed, but more research is needed to fully discover this. There is also lots of information about customer sentiment and interest in neobanks, which could help inform on future actions and behaviours.
- Technology - Some information does exist online, and requires more research.
- Company backgrounds - This is mosty available online, along with company profiles
Some Other Points To Consider - May want to consider adding these important aspects to the scope
- Which business model the banks are using - This provides important information about the strutcture of the bank, as well as the types of partnerships it requires (or desires) and the customers it can target.
- How customer behaviour is driving neobank decisions - the covid-19 pandemic has seen unprecedented change in consumer behaviour and their associated actions. There is lots of available information on how this is driving decision-making and goal-setting.
- Neobanking trends - There's lots of detail about the latest trends and new ideas in the sector and how they are being used to benefit customer base. May want to consider including these into the research.