Have you been following the financial industry and its current trends? Then chances are that you might have come across the word “Neobank”.
Although neobanks are quite popular in the US and European countries, it’s a fairly new entrant in India’s financial landscape. These banks exist only in cyberspace and have no brick and mortar branches. But they are quickly becoming the talk of the town.
And one thing is for sure, the Small and Medium Enterprises (SMEs) in India that were being underserved in terms of their financial and banking help are being served much better nowadays thanks to the neobanks.
Secret of the Rise of Neobanks in India
So, first things first, let’s define the term neobanks. A neobanks is a digital provider of bank-like products without having the same physical branch networks as the traditional banks.
A neobanks is a digital provider of bank-like products without having the same physical branch networks as the traditional banks.
In today’s pandemic world, the rise of neobanks has become a vital phenomenon for SMEs. The majority of them are concerned about the lasting effects of the COVID-19 crisis on their businesses, and thus have major concerns regarding their payroll, loan payments, etc. As a result, businesses are looking for a more reliable banking partner that can provide innovative financial management tools, enhanced customer experience, and tailored financial products. Basically, they are willing to step away from the corporate banking structure.
SMEs need access to financial products and services, and the neobanks are just at the forefront to meet their demands. Neobanks are becoming more and more popular amongst SMEs due to many reasons.
However, SMEs being underserved has become a global issue. The three main reasons why SMEs would want to sign up for the neobanks :
1. Getting Underserved by Traditional Banks
Traditional banks when compared to the digitally-focused neobanks, are least likely to offer built-in merchant services and tools that the SMEs use.
2. Better Banking Platform
When compared to the traditional banks, neobanks offer cleaner user interfaces and better and seamless user experiences.
3. Seamless Onboarding
Opening a neobanks has now become less painful. It can be done now in a jiffy, with less paperwork, and in most cases along with dedicated customer support that helps you throughout the process.
Why Do SMEs Feel Banks Fail to Understand their Needs?
Macro-economic developments are leading to large-scale unification among the banks. While SMEs have always been kept on the priority list of banks, few ground-level challenges including the chaos due to the sheer number of SMEs, a limited number of transactions, and due to the lack of data and documentation, banks have kept SMEs from growing their lending business significantly.
The majority of the banks feel that SMEs seeking credit lack creditworthiness because most of them have secured loans from informal sources and also do not possess proper accounting and documentation that support credit-seeking processes. Similarly, SMEs also find bank credit processes lengthy, inconvenient and unrealistic due to the demand for collaterals.
How SMEs Can Benefit from Neobanks?
1. Neobanks Offer Enhanced Customer Experience
The neobanks do not offer new banking services, instead, they offer the same and similar ones with better customer experiences. Neobanks know exactly what you want as an SME entrepreneur.
Compared to traditional banks, neobanks have much better online technologies and are much more innovative on the existing processes such as opening a bank account, tracking UTR number, etc.
2. Takes Away A Lot of Your Accounting Hurdles
Apart from providing general banking services, neobanks also help to deal with some of your accounting stuff too. Bank reconciliation, bookkeeping, GST invoicing, balance sheets, etc. can all be handled and automated with the help of neobanks.
They provide a platform that helps businesses send and receive payments, and access third-party banking and business applications allowing multiple businesses to simultaneously manage all banking needs under a single platform.
3. Sets You Up with Amazing Insights
As an entrepreneur, it’s very useful to keep track of all your payments and receivables, bank statements, invoices, etc. this enables you to have control of what’s happening on the financial side of your business.
Most neobanks give you access to a dashboard, wherein you can get to know the useful analytics on your accounting, payments, receivables, etc.
4. Neobanks are Transparent
Getting surprise charges and unknown penalties? You don’t have to worry about that anymore with the neobanks. They are as transparent as a financial company can be.
With neobanks, you will receive instant alerts so that you’re always aware of exactly what’s going on with your account. Every neobanks is promising its customers a level of transparency and openness that discards unwanted charges.
5. Most Secure Payment Gateway
While starting to run a business, you always ensure to strive for the safest and most professional way to deal with financial transactions online. And you always have to make sure that the customer information is kept secure.
Most neobanks offer easy-to-use and operate APIs to integrate banking into accounting and payment infrastructures.
2021: The Year for Neobanking
Neobanks are catering to futuristic people, who are ready to take up risks and prefer better banking solutions. There are over millions of small and medium-sized businesses throughout India, constituting a majority percentage of the total industrial units. But only a minority percentage of them were being able to access tools for payment, disbursals, and other vital processes. This means, there’s a huge market for neobanks, especially since they have a lot to offer.
Over the last 3 years, neobanks have been on the rise in India with 811 by Kotak, Yono by SBI, RazorpayX, Open, NiYo, etc. And these have been successfully helping SMEs and even large enterprises with billing, cash flow, disbursals, etc. It is expected that by 2025, neobanks will be managing a big chunk of the SME lending market for sure.
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