But what is a neobank?

Unlike traditional banks which have physical branches across the country, a neobank is entirely digital and is built on a tech stack as the offering approach. Everything happens on the app itself. Onboarding is smoother with zero paperwork, Video KYC, and account creation in an instant, and it has all the bells & whistles like a debit card, and time deposits similar to a regular bank. Essentially, a neobank is built around consumer convenience & banks from anywhere without having to visit a bank once. They are touted to be cost-effective as there’s no infrastructure & real-estate leasing/owning is involved.

Think of it as fintech but for banks.

So Can I start a neobank too then?

Not really. RBI, the regulator of banking in India doesn’t allow offering banking services without a banking license. So there are only 2 ways to go about this:

  1. If you’re a regular bank, you already have a license in place, you just need a tech stack that is more of an extension of the existing bank ecosystem. Kotak 811, ICICI Mine and Axis ASAP are some of the names that fall into this category.
  2. If you’re not a regular bank, you have to tie up with an existing traditional bank that acts as a banking partner to hold & maintain these digital accounts. The majority of neobanks in India fall under this. Fi & Jupiter have partnered with Federal Bank, while Niyo has Equitas Bank as its banking partner.

But aren’t traditional banks already doing this with their mobile apps & net banking?

Yes, but this comes only after you are onboarded, i.e already have an account with the bank which would require visiting one of their branches to open the account. And you may also have to visit your home branch for certain services which can’t be done online. Neobanks pride themselves on the fact that everything from onboarding to everyday banking services happens digitally on their cutting edge & modern tech platforms coupled with instant customer support.

Who are these neobanks for?

Currently, most of the neobanks are just casting a wider net to get as many people as possible to open accounts with them. But their use case has been defined and marketed for the below demographics.

  1. Tech-savvy people who are essentially millennials & Gen-Z are more likely to be enticed by the tech-centric approach.
  2. People with irregular cashflows like freelancers, gig workers who can’t afford to maintain Average Balance requirements, and higher fees that banks charge.
  3. MSMEs who contribute 30% of GDP, lose significant time & money for banking operations mainly due to legacy systems, paperwork, manual bookkeeping & accounting, and also face issues in getting credit and filing taxes. Neobanks can provide APIs and integrations to not only streamline their processes but do so at lesser costs.

How are these neobanks faring currently?

Onboarding & User Experience

Having used 3 of these popular neobanks – Fi Money, Jupiter Money & Niyo X, the user experience is more or less the same across. The onboarding was smoother and straightforward, account creation was instant and debit card has been sent over in fancy packaging with heavy branding. The app UI/UX is trendy & flashy and designed to impress tech nerds. Beyond that, everything is similar to the online ecosystem that traditional banks offer. The customer service is easily accessible but there’s an ample amount of FAQs that address most of your issues.

User Acquisition

People who open a bank account with a traditional bank do it out of necessity by walking into a branch. But it’s not the case with neobanks, so they rely heavily on marketing, primarily through social media and digital media. They also are employing referral marketing. So the userbase has seen quite a good growth as onboarding benefits are good and everything is free.

User Monetization & Cross-Selling

This is where the neobanks are facing an uphill task. Since there are no charges or Average Balance requirements, the user is not under any obligation to keep any money in the account or make them spend. So they are deploying the below techniques and it’s consistent across all of them.

  1. Loyalty Tokens – Fi has what they call Fi Coins, Jupiter calls them Jewels and Niyo X employs cashbacks.
  2. Merchant Partnerships – All neobanks are offering some form of exclusive discounts/rewards on shopping at partner merchants( e-commerce card spends, for example).
  3. Salary Account – Nudging users to make it their salary account, with additional perks and rewards, so there will be a constant inflow of money as well as spending.
  4. In-app Investments – Heavily marketing and pushing deposits, and mutual fund investments on their app
  5. Tracking – Ability to track other bank accounts, and investments right on the app; Analyse and display the ledger in visually pleasing & intuitive infographics

So are they really the Future?

One thing the neobanks addressed quite well is the process of onboarding and opening an account. They made it both simpler & cheaper for the end user. Beyond that, so far, they have just been a digital marketing tool for partner banks to acquire new customers. And if we look past the difference in UI, all of them have the same underlying features, with no USP to set them apart. We can see them as more of an extension rather than a disruption.