With India gazing at geopolitical tensions, ranking first in affirmed Covid-19 cases as of 16 August (averaging at 62,000: 7-day normal), seeing rising levels of unemployment (9.1%) in the first half of August 2020 and the desire for net NPAs of the banking sector expected to ascend as high as 14.7% by March 2021 – we should see how the solidified financial strain of these factors impacts the constriction of our GDP as well as the confidence of our people(maybe we can gain from the results of RBI’s Consumer Confidence overview that was released in July 2020).
In such situations when consumer confidence is low, CPI inflation is rising and the economy is packed with vulnerability – citizens will undoubtedly be careful, cut their additional expenses, and build up an emergency fund (strong bank deposits development at 11% in July 2020 feature this precautionary saving theory).
The unlocking of the economy, however not uniform has supported digital payments recover to ~92% of their pre-COVID run rate. This rise in fintech products in India has been supported by the reliable drive to accomplish financial conditions in India (Jan Dhan Yojana) and has grown up because of policy decisions like demonetization. This fintech market is expected to grow at a CAGR of 22% to arrive at ~INR 6,207 Bn by 2025. However, fintech encapsulates a large group of sub-sections and products.
In the midst of these fintech products, neo banking is a sector that is quietly raising funds. Neobanks are only digital banks with no physical branches. These are of two kinds, one which has gotten a completely operational financial license, for example, the German Neobank – N26. The other kind is the one that offers either an independent product or a container of services by collaborating with financial institutions and licensed lenders, for example, Banks and NBFCs. Two local Neobanks like Open and Jupiter come in the subsequent category.
Neobanks can easily create a financial product that is less reliant on fees, will offer customized rewards, and take into account the millennial crowd. Despite the hazy situations that revolve around the functioning of Neobanks in India, home-grown Neobanks have raised funds as much as $ 200 Mn to ~ US $ 250 Mn over the last two years.
Given that India is the main nation apart from China to have a fintech adoption rate of ~87% (as of March 2020), we are relied upon to observe a solid development in Neobanks going ahead. In addition to Neobanks hoping to capitalize the social distancing pattern in the post-COVID time, they likewise expect to provide transparency and insights into a client’s personal finances (inside the regular set-up these subtleties are accessible just on demand) – both of which are required in India’s banking framework from the viewpoint of a consumer.
Subsequently, neo and challenger banks are gradually building up a niche in India and their market was esteemed at ~ US $ 475 Mn in FY19. Regardless of the consistent tug-of-war among Neobanks and Traditional banks in their mission to acquire new clients, the market for neo and challenger banks is relied upon to reach ~ US $ 15,000 Mn by FY27. Nikhil Kamath, Co-founder and Chief Investment Officer at Zerodha said, “The brokerage industry in India has also seen a significant digital shift and transformation. With several brokers moving towards a discounted fee model, the key differentiator has now become technology and a more digitalized customer experience. This bodies well for their future.”
With a CAGR of ~54 percent insight, it is believed that Neobanks will provide an extraordinary chance to the Indian government to ensure their goal of financial inclusion is met and simultaneously offers retail clients an alternative to lessen their banking fees (consequently giving them a choice to save more). With traditional worldwide banks like Goldman Sachs (Marcus) and JPMorgan Chase (Finn) venturing into challenger banks (like Neobanks) discreetly, it should be understood that as India digitizes not exclusively will its transactions become digital but so will its banks. Consequently, it is expected that the adoption of this segment to surge in the next three years.
