NEO Banks in India – 2021. A major technology disruption to traditional banking. The target - Capturing SMEs/MSMEs/Retail clientele – also a high potential job opportunity for graduates. (1) - PowerPoint PPT Presentation

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NEO Banks in India – 2021. A major technology disruption to traditional banking. The target - Capturing SMEs/MSMEs/Retail clientele – also a high potential job opportunity for graduates. (1)

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Neo Banks in India will shine and grow due to friendly reforms as setting up the Account Aggregator system. Today the traditional financial institutions have finally got a bridge to connect with technology, bypass legacy-infrastructure hurdles and match gen-Z customer expectations. Neo Banks will also help in employment generation. – PowerPoint PPT presentation

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Title: NEO Banks in India – 2021. A major technology disruption to traditional banking. The target - Capturing SMEs/MSMEs/Retail clientele – also a high potential job opportunity for graduates. (1)


1
NEO Banks in India 2021. A major technology
disruption to traditional banking. The target -
Capturing SMEs/MSMEs/Retail clientele also a
high potential job opportunity for graduates.
  • Ramesh Kumar Nanjundaiya
  • June 2021

2
Definition Fintech Neo Bank
  • Every decade has seen ongoing new innovation in
    the banking sector for the benefit of its
    customers. This decade we are into Fintech.
  • Fintech - in a simple manner. Financial
    technology (Fintech) is a new technology that
    tries to improve and automate the delivery and
    use of financial services. A combination of
    finance and technology helps consumers,
    businesses and companies to better manage their
    timely financial operations by depending on
    specialized software and algorithms on
    computers, laptops, smartphones and mobiles.

3
Neo Bank and AI
  • Extending this definition, it was only in early
    2016 that fintech based financial providers came
    into the market as NEO Banks which are an online
    bank, an internet-only bank, a virtual bank, a
    challenge bank or a digital bank that operates
    directly and exclusively online without
    traditional physical branch networks.
  • Neo Banks are AI-driven and incorporate the
    entire financial portfolio onto a single platform
    to keep track of your entire banking operations
    of receipts, payments and transactions in
    real-time for your benefit.

4
Digital Bank and Neo Bank Differences
  • A digital bank is generally the online-only
    subsidiary of an established and regulated bank.
  • A NEO Bank operates solely online and does not
    have any physical branches independently or in
    partnership with traditional banks. This enables
    them to navigate and comply with the regulatory
    environment.
  • Neobanks differ from a Digital bank as they are
    stand alone and their business model is based on
    digital operations on a mobile-app based utility.
    With this technology, they are able to fully
    provide similar services as that of traditional
    banks on real time.
  • A Neobank is exclusively an online organization.

5
Payment Banks
  • Before diving into NEO banks we should briefly
    look at a new concept called Payment Banks.
  • The Reserve Bank of India (or the Central Bank of
    India) had conceptualised a new avenue called
    Payment Banks. Essentially these banks can accept
    a restricted deposit, which is currently limited
    to ?200,000 per customer and may be increased
    further. These banks cannot issue loans and
    credit cards. Both current account and savings
    accounts can be operated by such banks. Payments
    banks can issue ATM cards or debit cards and
    provide online or mobile banking. 
  • The following is the list of active payments
    banks currently operating in India
  • Airtel Payments Bank
  • India Post Payments Bank
  • Fino Payments Bank
  • Jio Payments Bank21
  • Paytm Payments Bank
  • NSDL Payments Bank
  • The main objectives of setting up of payments
    banks are to ensure the financial inclusion by
    providing payments/remittance services to migrant
    labour workforce, opening up small savings
    accounts of small business holders, low-income
    households, workers of the unorganised sector.

6
Entry of NEO Banks
  • With so much talk about Mobile banking and
    customers becoming tech savvy, NEO banks entered
    the stage with more technology added to the ever
    expanding financials affairs and services and
    expanding customer base due to digitization of
    services.
  • With the aim of providing timely cost effective
    customer services, Neo Banks have integrated
    technology so seamlessly that they provide
    effective digital and mobile-first financial
    solutions, payments, money transfers, money
    lending, account position management and much
    more.

7
Entry of NEO banks continued
  • While NEO Banks do not have a bank license of
    their own, they count on bank partners to provide
    bank licensed services, a mutually beneficial
    relationship. 
  • Very early NEO Banks saw that there was a hidden
    growth potential in the SME MSME business and
    small grocery business covering the nook and
    corner of India which was still highly unbanked
    by 100s of traditional banks operating in India.
    They could not provide standard technology aided
    services like payment gateway, cash management
    services, receivables reconciliation, etc. 

8
NEO Bank and traditional Bank
  • It is a win-win situation. NEO Banks actually
    partner with traditional banks and help them
    acquire new customers in a seamless manner.
  • NEO Banks or a virtual bank provide many new
    financial and value-added services to traditional
    banks. NEO Banks bring in good volumes hand
    picked customers for loans and other banking
    services after necessary due diligence per
    banking regulations and thus the traditional
    banks have no hesitation in processing request
    and provide core regulated products and services.
  • NEO Banks are facilitator of services. They help
    traditional banks to grow their books on timely
    basis with quality assets. This is the biggest
    USP of NEO Banks.
  • NEO Banks took advantage of mobile technology, to
    provide timely secured encrypted cash transfer
    and related financial services across the board
    for mobile and smartphone users by way of user
    friendly apps at a very small fee. Thus providing
    extreme convenience.

9
Reserve Bank of India (RBI) guidelines on
regulations for NEO Banks
  • Today the RBI cannot grant virtual banking
    licences. How to overcome this.
  • RBI has come out with its master circular called
    titled "Mobile Banking Transactions in India
    Operative Guidelines for Banks", has mandated the
    requirement for digital banking service providers
    to have some physical presence.
  • This essentially means, neo-banks or virtual
    banks can provide banking related services only
    through outsourcing their technology oriented
    banking responsibilities to licensed banking
    institutions and non-banking financial companies.
  • Such fintech companies operating in India have
    entered into an outsourcing arrangement where the
    non-banks verify data for credit requests or
    undertake the preliminary work for opening
    current accounts. This arrangement under the RBI
    Guidelines on "Managing Risks and Code of Conduct
    in Outsourcing of Financial Services by banks" as
    well as the 2010 RBI Guidelines on "Financial
    Inclusion by Extension of Banking Services.
  •  

10
RBI regulations continued
  • NEO Banks also comply with data protection laws
    since they facilitate a number of services
    between the consumer and the banking institutions
    by providing an online platform.
  • The Indian data privacy regime comes under the
    IT Act and the Information Technology (Reasonable
    Security Practices and Procedures and Sensitive
    Personal Data or Information) Rules, 2011 (SPDI
    Rules). These rules are quite extensive and
    provides good protection to the end users, i.e.
    the customers.
  • As per the SPDI Rules, an entity that collects
    or processes sensitive personal data (including
    bank account information and payment instrument
    details) pertaining to an individual must (i)
    establish a privacy policy (ii) provide
    mandatory notice/disclosure to the data subject
    before collecting the information and a host of
    other guidelines.

11
NEO Banks are good due to ...
  • They make access to credit easier,
  • Other services provided to customers include
    facilitating opening and operating savings or
    current account with a licensed bank,
  • Access to loan offers or applying for loans,
  • Issuance of co-branded cards, payment gateway
    facilities,
  • Personal finance, or expense management,
    providing value added services such as invoice
    generation, accounting,
  • GST compliance, payroll management,
  • Enterprise resource planning, etc.
  • Such services have made NEO Banks very popular
    among not only the youth but also the mid level
    career professional, businessmen, traders, etc
    who today prefer banking through applications
    rather than physically going to a branch which
    can be inconvenient and time-consuming and quite
    restrictive due to covid 19 pandemic and extended
    lockdowns and health issues.

12
Earnings
  • One method of making monies for the timely
    technology oriented service provided via
    smartphone, etc is via marginal earnings between
    money inflows and lending and service or
    convenience fee. 
  • NEO Banks are able to provide highly reduced
    customer fee for services provided as they are
    completely online. This gives rise to high volume
    clientele acquisition thus enabling steady flow
    of earnings.
  • NEO Banks tend to be highly customer-centric as
    they provide personalized services to their tech
    savvy customers.
  •  
  • NEO Banks specialize on data driven
    decision-making process. This means that they are
    able to collect and analyze data and understand
    how their customers behave in the technical
    ecosystem.
  • They are able to get and machine process a lot of
    data analytics and consumer behaviour and action
    patterns and thus can modify their suite of
    services.

13
Advantages of NEO Banking
  • NEO Banks are completely digital, they open up a
    wide window of advantages to a customer such as
  • Hassle-free account opening and account creation
    via a mobile in a very short time.
  • Reporting of transactions on real time basis.
    Availability of account balance anytime.
  • A customised expense sheet on your app.
  • A monthly receipts and expenses summary
  • Loan maturity sheet with alerts for payment and
    running interest schedule.
  • Seamless international payments anywhere via
    mobile and no need of any plastic cards.
  • User-friendly interface providing security and
    transparency
  • Easy to use APIs
  • Neobank apps are very crisp. They are generally
    highly responsive and well-designed to suit the
    needs of a customer. The ease of use is what
    makes the app such a hit amongst its customers.
    Neo banks are featured with dashboard systems
    with advanced interfaces, easy to understand, and
    practical insights for services such as payables
    and receivables, payments, and bank statements.

14
Popular NEO Banks innovating in India
  • Per market analysis and RBI data and lately due
    to the Covid 19 pandemic, digital acceptance has
    been accelerated among customers for their
    banking requirements. Notwithstanding legacy
    technology, being a digital-only bank, they have
    presented an alternative banking option to other
    traditional financial institution incumbents.

15
Popular NEO Banks
  • NEO banks tend to work as a tech-savvy
    decision-making model setup and handle cash more
    easily and openly. These banks gather and assess
    data, understand the trends, try to quantify the
    behaviour of their customers, and then come out
    with predictions and results.
  • Popular NEO Banks
  • 811 by Kotak,
  • Yono by SBI,
  • RazorpayX-2018
  • Open,
  • NiYo-2015,
  • Open, Instant Pay-2013 and Yelo-2019 have
    partnered with ICICIBank.
  • Neo Banks in India particularly since the last 3
    year have been successfully helping SMEs, MSME,
    large enterprises, and the gig economy with
    billing, cashflow management, Working capital,
    disbursals, vendor management and much more.

16
Ongoing innovation in Fintech is the name of the
game
  • Today what is needed by both financial
    institutions, consumers, SMEs, is reliable and
    secure transactions with a minimal need for
    service interactions. Neo Banks who use cutting
    edge technologies are able to provide high end
    cost effective services. Today Financial
    institutions have adopted the following
    technological innovations
  • Blockchain
  • Mobile banking
  • AI and machine learning
  • Microservice architecture
  • Open banking
  • Eg Microservice architecture is a new way of
    approaching the structure of information systems.
    Traditional software created large,
    interdependent systems of software functions,
    which led to systems that were difficult to
    update or modify. In other words, changing one
    part of the system would usually have unintended
    impacts on many other parts. Microservice architec
    ture breaks down complex software systems into
    smaller independent components, each providing a
    defined service. 

17
Fund raising
  • Per latest date available, NEO banks in India
    raised around USD 90 million in 2019. Expected to
    double in 3 years.
  • NEO Banks in India are positioning their offering
    close to traditional banks. It is because RBI has
    not yet permitted banks that solely exist
    digitally. Therefore, most of them are now
    working in partnership with banks.
  • Globally, neobanks are growing fast and are
    expected to generate 394.6 billion USD by 2026.

18
Enabling Technologies
  • The wave of digitization is here to stay.
  • AI, IoT, and solutions for customer-facing
    operations (e.g., CRM software) will be on the
    rise.
  • The financial service sector will look forward to
    virtual call centers, online account opening
    procedures, loan automation, and
    automated/chat-based customer support.
  • Neobanks, with their tech-expertise, can
    eventually function as a digital front-end to
    the core banking solutions.

19
Tech Savvy customers leads to new job
opportunities for graduates
  • Consumers are now adjusting to the fact that
    digital business is here to stay.
  • Customers will slowly and steadily adopt to NEO
    banks digital platform.  
  • NEO Banks will survive on bank partnerships
    provided by acquiring new customers for them. 
  • Neo banks will educate bank customers
    for on-boarding and helping them to be more
    saving savvy and more financially competent. 
  • Huge untapped opportunities in a market like
    India is available. Eg a salary account banking
    for un-served underserved working class blue
    collared workers banking for SMEs  cross-border
    travel payments or smart digital bank accounts
    for students and millennials.
  • To a large extent, Indian NEO banks are
    technology platforms that integrate traditional
    banks with open APIs.  
  • The foregoing clearly indicates that there will
    be a huge and growing opportunities for qualified
    graduates to seek employment in NEO banks. There
    will be added bonus if they are able to bring in
    new and evolved digital products and services and
    new clientele to the table.

20
  • THANK YOU
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