Neobanks in India: Meaning, Examples, Benefits and Challenges

Neobanks UPSC: Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Neobanks in India: Context

• Recently, RBI has decided to take a hard look at the neo bank business model due to its rapid penetration in the banking sector.

What is neobank?

• A neobank is a digital bank that does not have any branches. It is entirely online and have no presence at any set location.
• A neobank is basically a fintech firm that provides digital and mobile-first services like payments, debit cards, money transfers, lending, and more.

List of neobanks in India

• Neobank examples: Fi Money, Jupiter, Fampay, Mahila Money, RazorpayX, Niyo, Open among others.

Neobank benefits

• A neobank act as a bridge between the services offered by the traditional banking and the expectations of a new-age customers.
• Neobank provides personalised experiences, employ data-driven insights and offer value-added services.
• The biggest attraction of neobanks is that most of them don’t have minimum balance requirements.
• Neobank vs traditional bank: While traditional banks continue to struggle with bringing their legacy-based infrastructure into the digital age, neobanks leverage its modern digital platforms to analyse customer data and make data-driven decisions.
• Neobanks can also afford to slash customer fees since they don’t have to bear the expenses of running physical locations.
• Neobanks provide hassle free account creation due to their tech-driven nature.
• Tailor made products: Being data driven, neobanks can tailor their products to businesses depending upon their size, scale, and expenses.
• Most of the credit products offered by these banks are focused on people who are new to credit or who are underserved by the existing banks.

Neobanks vs digital banks

• A digital bank and a neobank aren’t quite the same.
• While digital banks are often the online-only arm of a bigger player in the banking sector, neobanks are completely digital, existing independently to traditional banks.

Neobanks challenges

• At present, neobanks are not explicitly regulated by RBI. So, it is difficult for people to trust an entity with their money if it is not well regulated.
• In India, neobanks don’t have a bank license of their own. Instead, they count on bank partners that are regulated to provide bank-licensed services.
• Neo-banks cannot accept deposits or offer lending products on their own books.
• In the current ecosystem, neo banks are currently quite divergent in the products and services offered. In fact, there is no neo bank that offers the full suite of traditional banking products.
  • While there are a few that offer only deposits and FDs while others are more focused on credit products.

Read current affairs for UPSC

Sharing is caring!