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Freo starts offering savings account with Equitas Small Finance Bank

Freo’s move is opposite of that to its peers in the consumer neobanking platform space like Jupiter, Fi, Niyo, and others. These players began by offering savings accounts in partnership with banks and are now foraying into lending.

June 21, 2022 / 04:15 PM IST

Bengaluru-based fintech startup Freo on June 21 launched a digital savings account offering Freo Save, in partnership with Equitas Small Finance Bank, in a move to become a full-stack neobanking platform providing lending, savings, and wealth-growth products to consumers.

In an address to the media, the startup which began as a lending fintech through its platform MoneyTap, announced that it aims to open a million accounts over the next 10 months within the new savings vertical.

Freo’s move is opposite of that of its peers in the consumer neobanking platform space like Jupiter, Fi, Niyo, and others. These players began by offering savings accounts in partnership with banks and are now foraying into lending.

Neobanking platforms act as a technology layer over core product offerings by making a proposition to make banking easier through their interface.

Freo was co-founded by second-time founders and Indian School of Business alumni Anuj Kacker and Kunal Verma in 2015 as a personal loan platform and is backed by investors including Sequoia Capital and Prime Venture Partners.

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Kacker said, “This is an integral step in our vision towards providing end-to-end financial products to the country’s millennials, digitally and on the app. With the launch of Freo Save, we have now become a full-stack neobank that will allow consumers to save, spend, and borrow with Freo’s help, all at the tap of a button.”

Kacker added that according to a survey conducted by the company, customers prefer to have multiple savings accounts and many would prefer to avail of banking services on an app rather than visit a branch.

The company said that Freo Save will offer an interest rate of up to 7 percent to customers for balances above Rs 5 lakh up to Rs 2 crore.

On consumer savings up to Rs 1 lakh, the platform will provide 3.5 percent annual interest. In the band of Rs 1 lakh to Rs 5 lakh, the interest rate stands at 6 percent and above Rs 5 lakh to Rs 2 crore, the savings will grow at the rate of 7 percent. Savings above Rs 2 crore will receive an interest of 5.5 percent annually.

He added, “It is (Interest rates) obviously tiered. But this is great in today's day and age. I think it's far better than most savings accounts out there,” Kacker said.

The neobanking platform also said it is the only digital savings neobank app that will be available in multiple Indian languages including English, Hindi, Tamil, and more, to ensure accessibility.

Freo’s digital savings account has been integrated with Equitas’ infrastructure on the Freo Save App and has UPI integration, said Freo.

“We don't charge for maintenance services which we don’t see as the right thing for the consumer because India is moving towards financial inclusion. If saving is a habit which we need to propel, we need to actually incentivise every penny that comes in by not penalising it,” said Murali Vaidyanathan, Senior President and Country Head of Branch Banking at Equitas Small Finance Bank.

Freo Save, like other offerings by fintechs, also plans to incorporate rewards to lure customers.

Freo is currently available in over 16,000 pin codes, covering over 85 percent of India’s pin codes and hence Kacker expects the customer acquisition cost to be low for the company for Freo Save.

While neobanking platforms continue to innovate and offer products with banks as the backend, the platforms do not fall under any specific regulation by the Reserve Bank of India (RBI).

In November 2021, Niti Aayog floated a discussion paper on licensing and regulating digital-only banks. The paper suggested creating a new set of regulated entities which will function as full-stack digital banks.

However, in a public address on June 17, RBI Governor Shaktikanta Das said that the suggestions came with certain risks and that the RBI currently has no proposal on these platforms.

Meanwhile, the long-awaited norms on digital lending are set to be released by the RBI soon which will govern lending by fintechs such as Freo and other digital lenders.​

A recent clarification sent to fintech players by the RBI barred non-bank prepaid payment instruments (PPIs) like prepaid cards and wallets, a move that came as a blow to business models of players like Slice, Uni, Kreditbee, PayU’s LazyPay, and so on.

“I don't think there's any deviation or any difference from what has come out over the last couple of days and what we're doing right now. In fact, the product we launched today is in line with the RBI governor’s comments on whether standalone digital banks will be getting a licence,” said Kacker.

With the RBI taking tough calls on fintech models, is there a worry that they may come for neobanking platforms too?

Vaidyanathan added, “Whatever comes in, we are all prepared and compliant with all of RBI’s regulations. We are regulated, continuously monitored, and are fairly guided, that's the most important signal.”

Besides consumer neobanking platforms like Jupiter, Fi, Niyo, and Freo, players like Open and RazorpayX provide the same services for businesses.

Moneycontrol recently reported that Freo’s rival Niyo too is entering the lending space with a planned acquisition of personal loan platform Smartcoin for $100 million. The company is also in talks to raise $100-150 million, just four months after the company raised $100 million in its Series C round.
Mansi Verma
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