New-age neobanks emerge as catalysts for change

Neobanks are fast emerging as catalysts for change, bridging the wide gap that traditional banking struggles to address.

India and China are among seven countries home to half the world’s 1.4 billion adults without access to formal banking, a recent World Bank has flagged. According to the Global Findex Report of 2017, India has the second largest unbanked population at 190 million people. Even though schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY) have managed to create bank accounts, its nationwide numbers as of October 2021 stood at 435.7 million. Merely having a bank account does not automatically translate into financial inclusion.

Talking to Bizz Buzz, Aditya Gupta, founder & CEO of Credilio, says, “In the complex tapestry of India's financial landscape, neobanks emerge as catalysts for change, bridging the wide gap that traditional banking struggles to address.”

Traditional banks often face financial viability challenges in setting up branches in far-flung areas, perpetuating the exclusion of millions from essential banking services, he said.

In response to this, neobanks have emerged as major forces, leveraging technology to penetrate where conventional banks hesitate. The omni-channel approach adopted by neobanks seamlessly integrates digital banking with ATM kiosks and offline banking, offering a comprehensive suite of products and services.

Neobanks are not merely providing a technological facelift to banking; they are fundamentally altering the accessibility paradigm. From facilitating account openings to enabling withdrawals, transfers, loan access, checking balances, and even offering avenues for investments, neobanks are addressing the diverse financial needs of individuals previously left on the sidelines. This innovative approach is not just about efficiency; it is about empowerment.

The Union Government has launched several initiatives to promote financial inclusion in rural areas. These include the PMJDY and direct benefit transfer of various schemes like MNREGA, PM Kishan, Pahal, NSAP, Scholarship, each of which has compelled people (nay beneficiaries) to open and operate bank accounts.

Under PMJDY, 34.01 crore accounts have been opened with deposits amounting to Rs 89257 crore up to January 30, 2019 within five years. The achievement of opening the largest number of accounts numbering 1,80,96,130 under PMJDY, in one week has found a place in the Guinness Book of World Records. A bouquet of products like overdraft facility of Rs. 10,000, accidental death cum disability insurance cover, term-life cover and old age pension have been made available under PMJDY to the account holders. The focus has also shifted from opening account for “every household to every adult”.

However, banks do not find it financially viable to set up branches in remote regions with sparse population. In order to overcome some of these challenges, banks have adopted the omni-channel approach with a mix of digital banking with ATM kiosks and offline banking, to offer a range of products and services.

Despite several efforts and initiatives by the Reserve Bank of India (RBI), nationalised banks and financial institutions, financial inclusion still remains elusive for many, simply because of lack of access.

Neobanks are impacting traditional financial services by leveraging technology that gives greater access at zero cost to the customer. They are going where no other conventional bank branch finds its way, thus helping people receive regular banking services, from account opening to withdrawals, transfers, loan access, checking bank balance, and even investments – Neobanks are offering all.

Every new account does not mean people coming into the banking system. New accounts don't always indicate that more individuals are using the financial system, though they can be an indication of expansion and increasing activity within it.

In order to better comprehend the dynamics of the banking system, it is crucial to take into consideration the many causes of new account opening.

Fino has opened 83 lakh current and saving accounts with the help of more than 16 lakh merchants and servicing an average of four million customers including of other banks. Fino Payments Bank has been leveraging technology to reach underserved regions and provide banking services to those who were previously excluded from the formal banking sector. Through its extensive network of merchants, Fino is taking banking services to the doorsteps of rural customers. These agents, often locals themselves, assist in account opening, cash withdrawals, deposits and other banking activities even during odd hours and in times of crisis.