The smartphone penetration rate in India is at an all-time high, estimated to see around 1 billion users of smartphones by 2026 with a major push coming from rural areas. This illustrates the shift to a digital world, suggesting the need for alternatives to everything that would provide CSAT at the end of the day. The world has already started its shift with people relying on online platforms for education to food delivery to medical consultations. The increasing number of e-commerce sites and apps which provide a variety of services is proof of this global shift. The money world has also started taking baby steps in this domain with the idea of making financial services available at the doorstep of every customer. However, financial inclusivity in a developing country like India is still a distant goal. Even though 80% of the population has access to at least one bank account, financial inclusion is yet to be achieved across all sections of the country. This enhances the need to capitalize on the revolutionary innovation in the world of fintech: Neobanks!
Neobanks are digital banks that do not have any physical branches. They entered the financial world with the badge of “challenger banks” that seek to bridge the complex infrastructure and client onboarding process of traditional banks. With this aim, they provide a vast number of banking services at a faster pace than traditional banks ranging from helping people receive regular banking services and updates, from account opening to withdrawals, transfers, loan access, checking bank balance, and even investments- Neobanks offer them all! In fact, they have the potential to reconceptualise the entire banking structure in the country if it weren’t for the RBI tying their hands.
According to the Reserve Bank of India, no banking entity should be 100% digital in nature. They need to attach themselves to a traditional bank having a physical presence to offer licensed services. Despite popular neobanks like RazorPay, Jupiter and Open being prevalent, none of them has achieved the true form of neo-banking due to RBI policies. This remains true even though they are currently in the race to achieve unicorn status.! The RBI’s security concerns over 100% online banks and their legitimacy are hindering the ground-breaking revolutions these banks promise in a developing economy. However, a common question arises: What about the digital banking services of the already existing traditional banks? The simple answer to this is that- they are existent, but always entail multiple rounds of physical verification and formalities in the branches. Furthermore, many services including credit facilities require the customers to go to the banks many times at large. This may come easily for those in the urban areas with branches around every corner to access, or rather officers coming to the residence to offer loans for the upper-class section, but that’s not always the case.
In a country, where a huge section of the population lives in rural areas, these branches aren't available for them to reach out for financial help or to deposit the money earned, mainly since it's not profitable enough for these banks to open their branches in economically backward areas. They’re sceptical regarding the return on investment that would come from areas where people are barely earning to sustain a livelihood. The idea of extending them credit is again a risky affair, after following multiple rounds of paperwork and collateral requirements. This essentially deepens the economic divide that the country has been suffering for a very long period, discreetly keeping out a certain section from availing of the banking services that are potential enough to upscale their life at a marginal level!
The dilemma that this might require a whole new system of awareness programs to bolster financial inclusivity is still better than continuing to keep a section away from exercising their basic right. With the surge in internet penetration and high smartphone usage, online banking is the most viable option. Starting from a milkman in a village to someone running a confectionary shop, neo-banks provide a solution to avail all the services of banking without the need to shut their business for one whole day so as to visit the branch in the city and follow the whole conventional procedures. Additionally, the cost of online banking is much lower than that of traditional banks due to the reduction in costs incurred in its functioning. Beyond the security concerns, if the ideal behind restricting these banks to go completely online lies with the perspective of holding most banking operations under the few nationalised banks like SBI, PNB etc, it then comes at a huge cost of limiting the overall credit supply in the economy along with the opportunity of ease in loan availability for the small and medium enterprises via online banking platforms. It not only increases financial accessibility but also provides a better threshold for upcoming initiatives and start-ups of small scale.
While all these advantages of Neo-banks outweigh those of traditional banks, the path to actuality is very far. It needs to start with RBI policies educating people about the nuances of online banking. The return however is unbelievable high and largely dormant in the making of an inclusive, accessible, and stronger economy in the country. When in doubt, the potential market of 833 million people living in rural India having meagre access to conventional physical branches provides sufficient incentive to the cropping up world of Neobanks to go ahead and establish itself as the new normal in the world of Fintech!
Dr. Sudhamathi R. K (2022, April 22) Fintech as a road map to enhance business operations and delivery of financial services, Asian Journal of Research in Business Economics and Management. https://www.indianjournals.com/ijor.aspx?target=ijor:ajrbem&volume=12&issue=3&article=001
Divyanjali Gupta (2022, July 25). Here’s how Neobanks are Changing the CX game in Banking https://www.mantralabsglobal.com/blog/heres-how-neobanks-are-changing-the-cx-game-in-banking/
Tarika Sethia ( 2021, August 4). Rising challenges for Indian neo-banks https://bfsi.economictimes.indiatimes.com/news/fintech/rising-challenges-for-indian-neo-banks/85028088
Business Standard (2022, February). India to have 1 billion smartphone users by 2026: Deloitte report https://www.business-standard.com/article/current-affairs/india-to-have-1-billion-smartphone-users-by-2026-deloitte-report-122022200996_1.html#:~:text=%22The%20total%20cumulative%20shipments%20of,five%20years%2C%22%20it%20said
Hou Yan (2016, March). Research on the Business Model of E-commerce Platform based on Value Co-creation Theory https://www.researchgate.net/publication/302916282_Research_on_the_Business_Model_of_E-commerce_Platform_based_on_Value_Co-creation_Theory