Future of neobanks in India

As India continues to embrace digital transformation across its financial sector, neobanks are emerging as pivotal players in reshaping the banking landscape. With a focus on fintech innovation, neobanks offer a range of financial services that are significantly different from traditional banks. Unlike traditional banks, neobanks in India operate without physical branches, leveraging technology to offer enhanced user experiences, streamlined services, and lower operational costs.

Neobanks in general and in India in particular - what is the strength?

The concept of neobanks began to take shape in the early 2010s. One of the earliest examples often cited is Simple, a neobank founded in 2009 in the United States. Simple set the stage for the modern neobank by offering innovative online banking services without traditional physical branch networks, focusing on user experience and financial management tools integrated directly into their service platform.

The neobank sector has experienced rapid growth over the past decade. Since the early 2010s, when the first neobanks began to emerge, the sector has expanded swiftly across the globe. The proliferation of smartphones and widespread internet access have been significant catalysts in this growth, enabling neobanks to offer accessible, convenient, and cost-effective banking solutions. By the late 2010s, numerous neobanks had emerged in various regions, including Europe, Asia, and the Americas, each serving millions of customers.

Technological advancements in artificial intelligence, machine learning, and blockchain have further fueled their growth by enhancing the capabilities of neobanks in areas such as personalized banking services, improved security, and regulatory compliance. The COVID-19 pandemic accelerated the shift towards digital banking, as traditional in-person banking interactions became less feasible, which significantly boosted the user base of neobanks. As of 2021 and 2022, the sector continues to grow, attracting substantial investment and expanding its services to include a broader range of financial products.

We at Markswebb estimate that the global neobank market could grow at a Compound Annual Growth Rate (CAGR) of approximately 25% to 30% from 2020 to 2025. This growth is driven by the increasing demand for digital banking services, particularly among millennials and Gen Z consumers, continued investment in fintech innovations, and the expanding capabilities of neobanks to offer more comprehensive financial services like loans, insurance, and investment products.

The main competitive advantage of neobanks lies in their inclusivity. Neobanks uniquely cater to clients traditionally underserved or overlooked by conventional banks, such as gig economy workers, small business owners, and individuals without extensive credit histories. By leveraging technology, neobanks offer these groups easier access to banking services, ensuring broader financial inclusion.

Well, what about India? How have neobanks come to be in demand in the Indian financial landscape and why?

Neobanks in India

Neobanks have become increasingly popular in the Indian financial landscape for several key reasons:

1. Large unbanked population: A significant portion of India's population remains unbanked or underbanked. Neobanks offer an accessible option for these individuals, providing easy-to-use digital banking services that require only a smartphone and internet connection. This accessibility helps bridge the gap in financial services, reaching remote and rural areas where traditional banks may not have a physical presence.
2. Technological adoption: India has seen a rapid increase in smartphone usage and internet penetration. The rise of affordable mobile internet has enabled a larger segment of the population to access digital services. Neobanks, which operate primarily through mobile apps, benefit from this trend as they cater to a tech-savvy generation that prefers conducting financial transactions online.
3. Regulatory support: The Indian government and regulatory bodies like the Reserve Bank of India (RBI) have been supportive of digital innovations in the banking sector. Initiatives like Digital India and policies aimed at increasing financial inclusion have created a conducive environment for the growth of neobanks.
4. Fintech innovations: India's thriving fintech sector has fueled the rise of neobanks. Innovations in payment technologies, security, and consumer financial services have allowed neobanks to offer a range of products that are competitive and often superior to those of traditional banks in terms of convenience and user experience.
5. Young demographic: India's young population is more open to trying new financial services that offer convenience, speed, and enhanced customer experience. Neobanks often offer features like real-time tracking, personalized financial insights, and seamless integration with other financial tools, which appeal to this demographic.
6. Competitive services: Neobanks in India often provide services with lower fees, higher interest rates on savings accounts, and better customer service compared to traditional banks. They also offer novel trending features such as budgeting tools, automated savings, and predictive analytics on spending patterns.

If we sum up these characteristics, it can be concluded that neobanks are popular not just as a means of payment, but rather as a lifestyle - vibrant, cutting-edge, and a bit luxurious.

In other words, neobanks in India are as popular as Shah Rukh Khan. And yes, Shah Rukh Khan is also adored by Gen Z and Generation Alpha.

If you want your bank to be popular in India (well, almost like Shah Rukh Khan), come to us. We know the secret to popularity.

3 reasons why neobanks will be popular in India

Here are three reasons why neobanks will continue to increase their popularity in India.

Quicker onboarding processes

One of the hallmark features of neobanks in India is their ability to simplify the onboarding process. Utilizing digital platforms, neobanks eliminate the need for physical visits and extensive paperwork that traditional banks often require. Through the use of advanced technologies like AI and machine learning, neobanks can quickly verify identities and set up new accounts, significantly reducing the time from application to activation. This efficiency not only enhances customer satisfaction but also aligns with the increasing preference for digital services among Indian consumers, especially millennials and Gen Z.

Lower fees and cost efficiency

Neobanks reduce overhead costs by not maintaining brick-and-mortar branches, which allows them to offer services with lower fees compared to traditional banks. This cost efficiency is particularly attractive in the Indian market where price sensitivity is a significant factor for many consumers. By offering zero or low fees on basic banking operations such as digital transactions, account maintenance, and ATM withdrawals, neobanks provide a compelling value proposition that challenges the fee structures of established banks.

Innovative customer experiences

Fostering innovation in customer experience, neobanks leverage mobile apps and digital banking platforms to offer personalized banking solutions. Features like real-time notifications, automated savings, personalized financial advice, and user-friendly interfaces cater to the needs of a tech-savvy population looking for convenience and efficiency in their banking interactions. Moreover, neobanks often integrate with other fintech services to offer comprehensive financial solutions including payments, lending, and insurance, all accessible via a single app.

Top 7 neobanks in India

As of 2024, here is a list of some of the top neobanks in India, known for their innovative banking solutions and strong customer appeal:

1. RazorpayX - Offers a comprehensive suite for business banking needs, including payroll management and automated payments.
2. Niyo - Known for providing digital savings accounts and investment services aimed at increasing financial inclusion.
3. Open - Popular among small and medium enterprises (SMEs) for its seamless banking, payments, and expense management solutions.
4. Jupiter - Targets millennials with features like zero fees on basic services and an intuitive app interface.
5. Freo - A credit-led neobank that focuses on offering flexible credit solutions and financial products.
6. Fi Money - Offers features geared towards personal finance management and simplifies banking for young professionals.
7. InstantPay - Provides comprehensive banking services catering to individuals and businesses with features like instant loan approvals and extensive merchant services.

What else? Of course, there's a lot more wow-stuff to do

At Markswebb, we consider several neobank practices particularly promising for shaping the future of banking.

• Notably, the implementation of trial periods for premium services allows customers to experience the tangible benefits before committing financially, which can significantly enhance user engagement and revenue.
• Additionally, the integration of seamless sign-in options using biometrics and external authentication supports not only ease of access but also secures user data, streamlining the customer journey from the outset.
• Furthermore, the emphasis on community-driven support and collaborative financial tools like split-the-bill services and joint accounts encourages a more interactive and participatory banking experience.

These innovations align with our agency's vision of fostering highly personalized and user-friendly banking environments.

Conclusion: The road ahead for neobanks in India

The future of neobanks in India looks promising as they continue to align with the digital India initiative and the government’s push for financial inclusion. By addressing the gaps in traditional banking through technology-driven solutions, neobanks are well-positioned to play a significant role in the evolving financial sector. As consumer behaviors shift towards digital, neobanks in India are set to transform the banking experience, offering services that are not just alternatives but improvements over traditional banking models.