Neobanks typically function through a partnership model by collaborating with RBI licensed banks to provide users with a savings account and an umbrella of banking services.
A Statista research shows that as of Q1 2021, India has 560 million internet users, making it the second-largest base of internet users in the world, behind China. With the growing number of Internet users, India is heading towards becoming a digitally-connected nation and the Indian masses have also been quick to adopt tech-led solutions in daily life, including financial technology (fintech).
At the centre of this tech adoption are millennials and Gen Z, the ones born into a generation that does not remember life before technology. They are the earliest adopters of new technology and the ones driving the paradigm shift in consumer behaviour. Sectors such as hospitality, healthcare, travel and even education have adapted to this changing consumer behaviour over time.
More is always less
According to the 2020 Deloitte Millennial Survey conducted in India, 50% of millennials and 37% of Gen Z identified day-to-day finances as a source of stress. Millennials can buy clothes, order food, book a ride, upskill and even schedule a doctor’s appointment hassle-free with the tap of a finger by leveraging the internet and technology on their mobile. There are also apps to help trade in stocks, deal with cryptocurrencies, and budget finances. However, similar user-friendly tech and convenience have been absent so far in the banking sector. With today’s generation conditioned to making so many personal decisions using digital services, they are going to expect more from their financial apps.
Changing banking landscape
To adapt to the evolving consumer needs and to simplify the financial journey, the banking industry will have to re-think its offerings. The rise of neobanks as a category is the first glimpse into the future of banking. Neobanks are virtual, digital-only banks with no physical branches that offer end-to-end app-based banking solutions. Users can sign up for a bank account with neobanks on their mobile through a completely seamless and paperless onboarding process. It combines the best features of a traditional bank such as trust, security, financial products such as deposits with agile technology, superior user interface and experience.
In India, neobanks typically function through a partnership model by collaborating with RBI licensed banks to provide users with a savings account and an umbrella of banking services. They build on the existing banking infrastructure to develop an intelligent layer/platform that makes managing money simple, smarter and intuitive for the account holder- a unique selling point (USP) of neobanks.
A 2021 report by Boston Consulting Group (BCG) reveals that there are now 249 digital banking players globally, ten of which are based in the Asia Pacific (APAC) region. Fi is one such neobank that launched earlier this year in partnership with Federal Bank. Among other things, it aims to simplify finances for millennials who are working professionals.
Banking on the future
With ecosystem partnerships developing, neobanks can also offer investment avenues, insurance, credit, etc. This middle ground makes neobanks a one-stop platform for a customer’s every need on their financial journey and provides an omnichannel approach to finances for digital natives. With integration, customers will soon require only a single app to manage their finances.
Besides the basic savings account and banking facilities, neobanks provide a host of features and tools to empower users to take ownership of their money.
- Customer-friendly user interface that highlights the tech-first innovation of neobanks and keeps the user engaged
- Dashboards to navigate everyday transactions and option to automate payments
- Flexible savings options that help the user save on their terms and promotes healthy saving habits
- Personalised insights on money behaviour to help users analyse their money flow, spend intelligently and nudge them towards saving
- Rewards on spending/saving
Apart from the above, neobanks offer jargon-free guidance, round-the-clock customer support, greater transparency and protection of personal data.
The road ahead
An exceedingly digitized economy in a post-pandemic world has provided an impetus to neobanks. BCG believes that Digital Challenger Banks will continue to gain traction with consumers as they seek increased personalization and value-added services from their banks. Hate it or love it, by designing financial products with the user at the centre, neobanks have become the latest disruptors in the fintech ecosystem and the first window into banking 2.0. Catering to a segment like millennials that enjoy a high degree of social influence also comes with its benefits- deliver satisfaction, and they can drive the adoption of neobanking with peers, shaping the future of consumer finance forever.
Source: Business World
