Neo-banking is the new ‘buzz word’ in the fintech world. Every fintech startup wants to become a horizontal player, offer payments, savings, lending, investments and insurance—in short, offer the entire banking suite digitally.
While some large fintech players are expanding into complementary services and terming themselves as neo-banks, there are entrepreneurs with pedigree who want to start off as a digital banking platform in collaboration with a scheduled commercial bank and eventually apply for a banking licence, whenever it is on offer.
Neo-banks are a category of fintech players which offer the technology layer through an interactive mobile or web application, digitise multiple banking processes, offer savings and investment services online—all without any physical branch and riding on a banking licence of a commercial bank.
Not all neo-banks are in the same business. While a few are targeting small enterprises like Open and targeting blue-collar workers like Niyo, there are a few who want to cater to the needs of the youth and school- and college-goers. While the customer segment might be different, eventual product categories continue to be similar.
Kids learning about money
Rohit Ramachandran, while working as a general manager at Electronic Payment and Services, a Mumbai-based payments player, often thought about how first-time job seekers and young adults hardly saved anything during their college and university days. The idea of a money management tool for young adults slowly germinated into a business problem that needed to be solved.
Ramachandran partnered with his childhood friend Siddarth Padmanabhan, then a top marketing executive at Facebook India to start Neowise Technologies in Mumbai. “The idea was to impart better financial management skills to kids,” Ramachandran said over a video call from the financial capital.
The company is working on offering products like automation of allowance for the child, chores management, where the child will be given certain chores, and, on successful completion, will be rewarded in a certain form. The app will also bring in an interest component, in a virtual avatar through which the child will be taught the values of how money grows.
“We have already brought in some teaching modules for kids, we are also setting up our own content team which will create quick videos and interactive content to impart money management skills to kids,” he said.
GenZ is in vogue
Singapore-based serial entrepreneur Gaurav Sharma is also keen on this space. He intends to create a lifestyle app for the GenZ, who are the future consumers and keep financial services as the centrepiece of the product. Sharma, who founded Atlantis in 2019, has started working on two products: a money management app for children named Yodaa.club, and a neo-banking platform for millennials. While Yodaa.club was launched a few weeks back, the other platform is set to be launched soon.
Sharma wants to bring in social commerce, lifestyle, a community of Yodaa users, and inculcate savings habits among children. As he likes to call it, Yodaa will be the place to save, spend, borrow, learn, share and earn.
“We are also bringing in a card, it can be a virtual or physical, in collaboration with Mastercard, through which the child can transact digitally,” Sharma said.
Sharma wants to keep parental control an in-built feature of the entire product. They will get the app and will be able to keep track on where the child is spending money, how much is being spent and they can even control where all the card can be used, he said.
A digital banking dream
The aim for every entrepreneur entering this sector is a digital banking licence or a neo- banking licence, as it is called in different parts of the world. There has been hardly any commentary on such licences from the Reserve Bank of India, which regulates the banking domain. But with Singapore, South Korea and Hong Kong already giving out such licences and the United Kingdom seeing the success stories of neo banks like Monzo, these entrepreneurs are taking a bet on the future.
Sharma has no qualms about his dream, he spells out that eventually he would want to own a digital banking licence in India and Atlantis is being built towards that direction.
“Eventually we want to own a digital banking licence,” Sharma told Moneycontrol.
Sharma is not alone. There are other entrepreneurs who are building towards this dream. Jitin Bhasin, who was heading RupeeRedee, a digital lending platform, recently spoke about building SaveIn, which wants to create a neo-banking platform.
SaveIn is in conversation with a scheduled commercial bank to offer a digital savings bank account, a debit card and eventually also offer a credit card to eligible customers.
Bhasin is confident that eventually there will be a digital banking licence offered by the central bank and he wants to be in a position to grab it and offer differentiated banking experience for consumers.
Data and lending
Different entrepreneurs are taking different routes, but they will all ultimately come to two critical aspects of the technology world: data and lending. A top fintech observer commented, “Why do you think players want to be a neo-bank? It is because they want financial data about consumers.”
Ramachandran echoed the same principle. They are trying to get a better understanding of the consumer through a savings account, debit card and through a wealth management solution.
Neowise is actually bringing the solution of Stockholm-based neo-bank Gimi. The founders have partnered with the European company and is customising their solutions for Indian consumers. They are bringing in the data security and privacy principles of Gimi, so that they can track user data but with due consent and with due respect to privacy of their consumers, said Ramachandran.
“Our north star is lending around the education space and if we develop a strong database around kids and their parents using our app, eventually we can fund their education,” said Ramachandran.
Even for SaveIn, they want to track smartphone data of the users to build a profile around where they spend, how much they spend and how can they be lent to. Bhasin is even working on a credit card product where eligible customers will be offered one along with a savings account.
Onto the highway
The product road map has been carefully laid out. Conversations have already started with investors to fuel these dreams, with banks to support these endeavours and with consumers to latch on to these services. Now, will they end up creating multiple Monzos in India? Or will banks emerge as the ultimate winners with their own digi-bank products? Will the regulator even licence ‘neo-banks’ separately? Answers remain elusive.
Like Pankaj Makkar, managing director at Bertelsmann India Investments, said neo- banking is good, but eventually banks will want to get there too and they will use the services of fintechs to create their own digital banking suite. Where will neo-banks stand then, he asked.
“I believe there are either fintechs or techfin companies. I think neo-banks are extension of technology- aided financial services companies and they should be evaluated as techfins,” he said.
But till then investor interest, market buzz and startup circles continue to be humming with different ideas of neo-banks.