The Growth of Indian Neo Banks
As Indians adopt the digital lifestyle, neo-banks are gaining popularity for their hi-tech seamless banking services and innovative solutions. These banks are digital-only banking platforms with no physical presence and cater to customers who do not wish to spend much time and effort carrying out day-to-day banking transactions.
Digital and mobile-first financial solutions for payments like money transfers, lending, and other transactions are the main features of the neo banks. In the Indian context, neobanks are fintech firms that partner with a traditional bank to offer a banking app and other services like credit cards and loans. This means that the traditional bank provides the core services and the fintech firm through its neo-banking app ensures their seamless delivery. Neo banks also ensure an enhanced engagement experience to the customers.
The number of neo banking users in India is expected to grow to 21.19 million by 2027, according to Statista. The user penetration in the Indian neo banking market is expected to be 1% in 2023 and rise to 1.4% by 2027.
Neo banks in India: Future of Fintech
Indian laws do not allow fully digital banking establishments to operate in the country. So Fintech firms aiming to provide neo-banking services have to either tie up with existing banks or are the digital wings of physical banks.
• This category includes banks that do not have an operating banking license but tie up with a traditional financial institution and function in partnership with them. This includes players like Jupiter and Fi.
• Standalone or independent digital banks are the digital wings of an established bank. SBI’s YONO, Kotak Mahindra’s Kotak811, and Axis Bank’s Axis ASAP are good examples of this category of neo banks.
Neo banks operate 24/7 and offer customized services using advanced technologies like Artificial Intelligence or AI that also help them resolve customer concerns in real time. The accounts linked to a neo bank have to fully comply with the RBI guidelines and the savings bank
deposits come under the purview of DICGC insurance claims. The Indian neobanking space is dominated by players like RazorpayX, Jupiter, CredAvenue, and FI.
Unlike traditional banks that generate revenue from interest on loans and credit cards, low account balance fees, overdraft charges, ATM fees, and annual fees for credit cards, neobanks earn from out-of-network ATM fees and interchange fees paid by merchants on the use of debit and credit cards by customers.
RazorPay and Open are two unicorn neobanks in India with a valuation of over $1 billion. These neo banks are targeting the younger population, the Gen Z and the SME segment.
Neo Banks to Watch
1. Jupiter
Founded in 2019, this neo-bank has a tie-up with the Federal Bank. Jupiter allows its app users to open their accounts and manage them with the help of automated saving pots. The app provides real-time data on the users’ expenses thereby helping them plan their savings. The app was founded by Jitendra Gupta and is backed by multiple investors such as BEENEXT, 3one4 Capital, Matrix Partners India, Sequoia Capital India, and others. Jupiter also aims to expand its lending business through its NBFC status. The neo bank recorded total revenues of Rs 19.3 crore in FY22 which included other income of Rs 18.9 crore. Jupiter’s losses increased from Rs 14 crore in FY21 to Rs 164 crore in FY22 as its employee benefit expenses tripled over the same period.
2. RazorPay
This fintech company offers payment solutions to help small businesses. RazorPay is well known for its payment gateway and other payment solutions for all types and sizes of businesses. Founded by Harshil Mathur in 2014, RazorPay has the backing of investors such as Tiger Global Management, Matrix Partners, Sequoia Capital India, Y Combinator, and others. This fintech startup turned profitable in FY21 with net profits of Rs 7 crore. This Bengaluru-based startup witnessed a revenue from sales of Rs 841.2 crore in FY21, up from Rs 508.9 crore in FY20.
3. FiMoney
Founded in 2019, this Bengaluru-based neo bank has also partnered with Federal Bank. It offers zero balance neo banking savings accounts. FiMoney was founded by Google Pay co-founders Sujith Narayanan and Sunit Gawalani. The Fi money app is known for its numerous offers, cashback programs, in-built UPI Payments, and investment options besides several other customized offerings.
The app also provides Federal Bank FI Money co-branded credit cards to its customers. The neo bank that provides financial assistance by discounting cheques, bills or any other negotiable and transferable documents is now diversifying to offer investment options like mutual funds and peer-to-peer investments. The neo bank reported total revenue of Rs 25.8 crore in FY22, up from Rs 1.2 crore in FY21 while its losses surged to Rs 245 crore in FY22 from Rs 50.2 crore in FY21.
4. NiyoX
One of the oldest neo banks in India, NiyoX was founded in 2015 by Virender Bisht and Binay Bagri. This Bengaluru-based startup has partnered with Equitas Small Finance Bank to provide banking services to tech-savvy customers. The neo bank offers a range of services for savings and wealth management with digital lending.
5. FreoMoney (previously MoneyTap)
Again, one of the earliest neo banks that was founded in 2015 as MoneyTap, FreoMoney offers digital savings accounts with video KYC. Based in Bengaluru, this neo bank has partnered with Equias Small Finance Bank. Users of the FreoMoney app can easily open a savings bank account.
6. InstantPay
This front-end-based neo bank caters to business entities looking to open an instant current account without the compulsion to maintain a minimum balance. InstantPay has partnered with ICICI Bank. Customers can open their account from their mobile or website and access it from anywhere. The banking API provides smooth integration with the bank account and auto-categorizes all the transactions with analytics.
To conclude, India’s banking system is witnessing a sea change. The so-called neo banks are working on low-cost models and offering distinctive customer-centric service and experiences. Factors driving the growth of neo banks in India is embracement of innovative technologies to offer a wide range of services quickly and efficiently to millennials as well as small and medium enterprises.
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