Neo Banks Archives - Page 2 of 3

Ten Ways Embedded Finance Is Reshaping Customer Experience

Banks of all sectors have been slow to innovate and adapt to technological changes. This has been primarily due to their extensive infrastructure that can make the adoption of new tech a logistical nightmare.

Also, due to lack of competition and their monopoly, banks are in no hurry to innovate. However, the financial sector is undergoing a digital transformation. Embedded finance is one way many fintech and non-finance firms are modernising themselves and giving customers a better customer experience (CX).

What is Embedded Finance?

The lending institutions are developing digital-first solutions and leveraging embedded finance to provide an enhanced customer experience.

Embedded finance allows customers to avail financial services on their terms at any time and from anywhere. The customer no longer needs to visit the bank branch to access the money. In addition, it allows for seamless integration of a financial service into a non-financial website or an app.

For instance, integration of payments services across a range of non-banking platforms like mobility (Grab, Uber), social networking (Whatsapp, WeChat), e-commerce (again Amazon and Alibaba) are examples.

In the wake of COVID-19, India’s FinTech investments increased by 60% to $1467 million in H1 2020, compared to $919 million the previous year.

Ultimate Customer Experience With Embedded Finance

As traditional banks, fintech companies, and lending institutions embrace embedded solutions, it is likely to be the future of banking. And when it comes to customer satisfaction, positive experiences influence purchasing decisions in banking and finance for 75% of people.

You won’t have many chances to get it right when it comes to the customer’s experience. As per a PwC report (PDF), 1 in 3 consumers (32%) say they will walk away from a brand they love after just one bad experience. In Latin America, this figure is higher at 49%.

Embedded finance offers innumerable benefits to those who use these financial products. One of the most significant benefits is the delivery of a seamless customer experience.

Consumers place a high value on speed, convenience, helpful workers, and nice service, with each receiving over 70% of the vote.

Embedded solutions enable futuristic banking services and shape customer experience in the context of COVID-19: clarity, transparency, speed, support for digital tools.

Here’re ten ways how embedded finance can redefine Covid-era customer experience:

1. Customer-centric Business Interactions

As more people are going digital in response to the social distancing brought on by pandemics, lending institutions would want to capitalise on the shift by offering relevant digital financial products and services. Companies can do this by joining customer’s buying journey and focusing on what they want (buy products) rather than what the financial institutions wish to (sell loans). Offering financial solutions at convenience is one way to cater to their desires.

2. Embracing Banking Disruptions

It would have been weird to ask people to avail financial services from a non-traditional institution like an e-commerce company, earlier. But these days, it is expected that embedded finance has streamlined and changed how banking is carried out. Take, for instance, Amazon. The eCommerce giant offers instant lending to eligible buyers via Amazon Pay services in partnership with ICICI Bank.

3. Through, Safe and Secure Data Sharing

Embedded finance has brought a change in the mindset of the customers. Although they are wary of data breaches and have security concerns, they are willing to share personal information, including financial details, with third parties. Businesses can offer financial services at the right touchpoint backed by high-profile encryptions, allowing a seamless customer experience.

4. Increasing Financial Product Visibility

Traditional banking involves a visit to the bank branch. Once a customer reaches there, they may learn about other products such as loans. However, (fintech) companies can use embedded finance technology and leverage personal information such as credit history to recommend appropriate products, thereby increasing chances of fulfilling customer needs and closing a deal.

5. Bridging CX Gaps

Fintech companies can use the data algorithms to analyse consumer behaviour and identify patterns to find new opportunities in product offering, support and experience. Embedded finance enables companies to develop products that will help their clients in their transaction journey.

For example, users often abandon carts when shopping online because their credit or debit cards may be unreachable at that moment. If the payment details were readily available through the embedded finance apps or options like Buy Now Pay Later (BNPL), they would be more likely to complete such transactions.

6. Being Advantageous to Businesses

Embedded finance streamlines transactions, keeps customers engaged, and increases revenue streams for the business. When a business has a user-friendly interface, it will improve customer experience, and they would return with smoother transactions and increasing conversion rates. In addition, embedded solutions can help gather customer data, understand their needs and help to serve them better.

7. Adapting to Changing Consumer Habits

While the older generation prefers traditional purchasing methods, the new tech-savvy generation relies on shopping through social media and online platforms. However, more people who went to brick and mortar stores are shifting online. The pandemic has made the shift a necessity. In this light, digitisation and embedded finance are providing last-mile connectivity.

8. Tech Matters

Scalability and connectivity are crucial to every business. New age transactions have buying and lending taking place simultaneously. Embedded finance creates an easily configured cloud-based platform that can provide efficient service as per customer needs. It entails open APIs and trusted tech partners for safe and secure integration of third-party providers across channels.

9. Leveraging Established Relationships

When applying for a loan, most people trust their bank to share their personal information. Financial institutions can leverage embedded finance to use this established trust and build upon it. They can continue providing best-in-class services to fields they were already excelling at, like regulatory compliance, helping customers in their financial journey. At the same time, embedded finance will add another feather to the hat with exceptional lending or other services.

10. Satisfying Existing Customers

It is often irritating for most customers when they are redirected to other applications for completing a task or purchasing. Customers maintain loyalty if they have a unified, easy-to-use platform for purchasing. A single platform that is easy to navigate, obtain services and complete transactions faster assists in the customer journey. Embedded solutions provide newer avenues to serve existing customers and acquire new ones.

Here to Stay

All this said it is clear that the embedded finance is here and likely to stay. It is the future, even though there are challenges and concerns regarding the same. Though traditional banks are slow to adopt it, financial institutions may leverage embedded solutions to reduce friction and enhance customer experience.

Finezza, with its digitised consumer-centric embedded finance solutions, can help your business excel in creating a next-level customer experience. Contact us today to know more.

Can Fintech Innovations Bridge India’s Financial Inclusion Divide?

Updates

In the past decade, India has witnessed a quantum leap in the fintech industry. Fintech funding grew exponentially in the last few years, and after the COVID-19 pandemic, the industry became the blue-eyed boy of economies.

Of the total 2,100 fintech entrees in operation, 67 per cent of them started operations in the last five years. Amid COVID-19, India saw a 60% growth in fintech investments, and a Boston Consulting Group report released March 2021 says Indian fintech companies will reach a valuation of US$150-160 billion by 2025, becoming three times more valuable in the next five years.

So what the reports suggest is a skyrocketing rise in the valuation of financial technology in India. But the question still lingers: are these Fintech innovations enough to bridge the country’s financial inclusion divide?

Not everything is rosy in the fintech landscape, it turns out. While the sector is on the edge of a landmark journey towards unparalleled growth, financial inclusion of all and the last mile connectivity remains a challenge.

India’s Digital and Financial Inclusion Divide

India has 1.3 billion (and counting) people spread across the length and breadth of the subcontinent, a significant part of which lives in semi-urban and rural areas.

That population accounts for over 70 per cent of the nation’s population. Yet, according to the IAMAI research, just 20.26 per cent of rural Indians and 64.84% of urban Indians have access to the internet (despite the fact ‘mobile-first’ rural generation exists).

The digital financial gap exacerbates in the rural areas, where 80 per cent of inhabitants (and 64.84% of urban inhabitants) are yet to adapt to fintech as per ET stats.

These rural and semi-urban sections of the population do not have access to the traditional banking system. The World Bank estimates, about half of India’s population may be financially excluded, out of the formal financial net.

Even if they have a bank account, most of them are unable to get benefits due to several factors, including the distance of their village or home to the nearest bank branch, limited financial literacy, disinterest on the part of the bank, traditional mindset, trust issues, and others.

So, how can the challenges be overcome?

Fintech – A Beacon of Hope

Looking at the robust growth of sectors like health, education, and others, it can be safely said that technological innovations can bring technology hesitant people within the financial loop and help break the barriers of the digital divide.

According to NASSCOM, financial inclusion can help reshape the economy. Companies such as Udaan, Meesho are assisting people in making money despite living in far-flung areas. Fintech innovations can keep the momentum going on.

As per ET reports, India can grow into a $1 trillion digital payments market which is already the fastest-growing. In the fiscal year 2019-20, the country received 3,435 crores in digital payments which points out the popularity.

While the government is making strenuous efforts to promote digital India, the Reserve Bank facilitates the sector’s growth through regulatory initiatives. For instance, there will be a specific division at the central bank dedicated to fintech companies.

Fintech Innovations is the Way Forward

The fintech innovations can help accelerate financial inclusion, and technologies like AI and ML will further bridge the financial divide in India.

Despite the explosive growth of the fintech industry, lending in rural and semi-urban regions remains a challenge. Only 10 per cent in rural areas are estimated to have access to formal credit.

Also, India’s MSME sector contributing nearly 40 per cent of India’s 2.87 lakh crore GDP, is chronically credit-starved, even as India makes strides in financial inclusion. As a result, an estimated $600 billion credit gap exists in the sector.

But fintech coupled with digital push has the potential to turn the game of financial inclusion around. For example, Statista expects India’s digital lending market will contribute around 350 billion dollars by 2023.

The current pandemic has changed the scenario of the financial landscape. It has pushed digital payments where almost every segment of the population engages in e-commerce and online transactions.

However, this can be true for urban areas, but hinterland and rural areas may still be out of reach of the final inclusion. Fintech has the potential to help financial lending institutions become efficient and serve customised financial products at affordable pricing.

Banking the Underbanked

The legacy banking system with long drawn time-consuming processes and stringent requirements is not conducive to low-income households.

Fintech innovations like mobile money can minimise constraints by financial services available to this section of the population. For example, Kenya has shown the way with the success story of its mobile currency. Called M-Pesa, this e-currency offers a vast distribution network and user-friendly tech to provide bank access to more than one lakh Kenyans, thus lifting them out of poverty by improving their savings.

As another example, a digital ID card can help ease access and banking operations. For example, Aadhar is already being used for e-KYC for bank account opening.

Customers can obtain relatively small loans from digital lending companies via applications or online platforms. In comparison to bank loans, digital lending does not require a specific bank account, has fewer conditions, and is much faster.

Besides individuals, lending companies can also provide micro, small, and medium loans (MSME). The coronavirus (COVID-19) outbreak increased already high loan demand in this industry. As a result, many businesses could not obtain bank loans and be forced to seek alternate funding.

Increasing Trust and Convenience

Low-income households generally tend to distrust digital financial services and prefer cash for transactions. Therefore, the technology should strive to build a more robust infrastructure that allows users to interact with human interface and not solely rely on digital channels like chatbots to gain the confidence of low-income users.

In addition, fintech innovations such as embedding finance in already operational retail chains familiar to low-income households can help generate trust and inclusivity.

Providing Access to Basic Credit

Low-income households often lack access to essential services like water, health, sanitation, education, and electricity, among others. Fintech innovations like pay as you go models allow this section of the population to avail essential services on their terms.

When they save and see the corresponding benefits, they are motivated to keep going, thus encouraging more people to join and help in economic development. For example, Pradhan Mantri Jan Dhan Yojna is a scheme launched by the Government of India. It aims to fulfil the basic credit needs of the underserved sections of society. It comes with an overdraft facility and also offers accidental insurance cover. It is a zero balance account that aims to cover savings, insurance, pension and credit.

Fulfilling Unmet Credit Needs

Low-income households lack formal property rights and documentation, bank accounts and do not have credit histories. The traditional credit rating system considers all these factors and more while considering loan approvals.

Often these households are filtered out by the conventional lenders due to fear of default. Low-income women entrepreneurs are often hit more by this even though they tend to default less than men.

Fintech innovations such as a digital credit scoring mechanism monitored by machine learning can be used to process details and predict creditworthiness.

Plugging Cash Leakages

Low-income households generally undertake cash-based transactions. However, they are inconvenient, lack efficiency and transparency. Large ticket transactions are unsafe and expensive also. Fintech innovations like digitising payments can plug leakages, reduce costs, and improve traceability.

Financial Products Tailored to Fluctuating Incomes

The cash flow of low-income households is often constrained and unpredictable. This is because most of them are dependent on agriculture for income flows that rely on planting and harvesting times.

Traditional financial service such as monthly EMIs and frequent visits to the bank branch is inconvenient for them. However, fintech innovations such as FarMart and Jai Kisan offer flexible and timely financing to farmers to meet their equipment needs.

To sum up

The fintech innovations have increased its outreach to include stocks, bonds, peer to peer lending, and more. The widening of scope will ultimately help to encompass the underserved low-income sections.

Financial inclusion will catalyse both economic growth and poverty elimination. It will also aid in the achievement of the United Nations’ Sustainable Development Goals (SDGs).

In addition, by bringing innovation, the fintech industry in general and the lending industry will build newer financial products on a scalable architecture.

Finezza offers a whole suite of customised financial solutions to herald a new era where small and medium enterprises, women entrepreneurs, and others could gain financial opportunities like never before. So get in touch with us today.

Top 4 Credit Bureaus in India that Every Lender Trusts

Updates

We often talk a lot about credit bureaus and know that they are responsible for generating our credit scores. The credit information provided by these bureaus is used by various providers and businesses who want to assess the financial health and background of an individual. Let’s take a closer look at the prime functions of the credit bureau and the top credit bureaus in India.

What are Credit Bureaus?

Credit Bureaus are agencies that gather aggregate credit information from various data providers and compile credit reports. They then sell this information to creditors, lenders, financial institutions, and consumers and derive credit scores to assess the creditworthiness of an individual.

Credit bureaus, although are private companies, are largely regulated by the RBI. They play a critical role in deriving your credit scores based on previous credit history and impact the size of the loan you can qualify for, the interest rates for loans or credit cards can also serve as a background check.

Real Purpose of Credit Bureaus

Credit bureaus team up with creditors and lending institutions to help them accurate loan decisions. The key purpose of credit bureaus is to provide institutions with reliable credit information that can assist with ascertaining the creditworthiness of the borrower. That being said, credit bureaus are not responsible for making the final decision; they simply synthesise and supply credit information to their clients.

Their clients typically include banks, finance lending companies, credit card providers, mortgage lenders, etc. Consumers can also fetch their credit reports by visiting the individual credit bureau’s portal and keep a tab on their credit scores. Most credit bureaus calculate the credit score based on complex algorithms and data modelling techniques based on five critical components of credit, repayment history, credit exposure, age of credit, and credit inquiries.

Top 4 Credit Bureaus in India

Here are the top credit bureaus in India:

1. Experian

A global credit bureau agency has its corporate headquarters in Dublin and promotes itself as a premier global information services provider. It operates around 17 consumer credit bureaus and 11 commercial credit bureaus to provide a granular risk view of the customer.

Besides, it offers access to a comprehensive database including banking, trade data, legal items, third-party collections, and more to assist institutions to make informed decisions. It employs a range of modelling techniques to collect and combine data to arrive at a bespoke credit score that can be incorporated into existing processes and facilitate seamless automation of your decision-making to reduce underwriting costs.

2. TransUnion CIBIL

One of India’s leading credit information companies, it was incorporated in the year 2000 based on recommendations made by the RBI Siddiqui Committee and has one of the largest collections of consumer databases. It has over 5000 plus members including leading banks, NBFCs, housing finance companies, etc. and maintains credit records of over 1000 million individuals and businesses.

The CIBIL score is a reliable metric for creditworthiness and is India’s first generic risk scoring model for banks and financial institutions which was introduced in 2007. It was in the year 2017 that TransUnion acquired a stake in it and the CIBIL TransUnion Score was later launched.

3. Equifax

Another global player, Equifax is headquartered in Atlanta and was registered as a credit information company in 2010 in Mumbai as a joint venture between Equifax Inc. and seven leading financial institutions in India. They have access to the best and unique data to empower businesses to make the right decisions. They also provide analytical capabilities to deliver added knowledge with clever insights, greater flexibility, and faster time to market.

4. CRIF Highmark

CRIF India is one of India’s leading credit information providers. It has an extensive bureau database that caters to banks, NBFCs, insurance companies, telecom service providers amongst others. It is a pioneer of India’s first Microfinance Bureau database which is now the world’s largest microfinance bureau database. It leverages sophisticated made in India search algorithms and teamed up with CRIF in mid-2014. It now enjoys a global presence that brings the best of comprehensive data and sophisticated dedupe technology for India along with global best practices, expertise in scoring and top-rated credit management software solutions that aims to add more value to their clients.

Differences Between the Different Credit Bureaus in India

The key differences between the above credit bureaus lie in their provision of various products and services. They all provide instantaneous credit reports if requested online and are licensed by the RBI. The credit score can vary between each bureau as each company has its unique algorithm to aggregate and compute credit ratings.

Typically the credit score can range from 300 to 900, where 900 is the highest and 300 is the lowest. Thus the higher the credit score, the better the financial prospects of the individual. While for consumers instant credit reports may be readily available, one can get a credit report of a business or firm with additional time up to 1 week to process the entire credit report.

Finezza provides an industry-leading credit bureau data analytics platform with integrations into four main credit bureaus of CIBIL, CRIF, Experian and Equifax. As a result, the institution can gain access to multiple data sources of credit information through a singular system to highlight the complete financial picture and accurate risk assessment of the borrower.

The platform provides credit-focused grouping and alerts for pinpointing risks and a complete summary of loan history so that lenders can make well-informed loan decisions and avoid the risk of bad loans and NPAs.

Digital Banking From the 2030 Perspective

Updates

The banking industry of 2030 will look completely different from what it is today. The inevitable and ongoing hype around Fintechs and Big-tech firms in banking and other financial services have been in the news for quite some time now.

Even though the future seems uncertain, there’s no doubt that the 2030 landscape will be far more competitive, innovative and efficient in delivering customer experiences. By 2030, banks will be more invisible, connected, insights-driven, and purposeful.

How Will Banks Evolve in the Future?

With changing consumer expectations, emerging technologies, and new business models, banks will have to put forward specific strategies now to help them prepare for the future.

There will be more changes in the banking industry than what we have seen in the past 100 years. This is not only due to the advancing technologies but also due to a confluence of factors like demography, socio-economic, regulatory, and environmental changes.

However, these changes are likely to result in people living longer, changing jobs frequently, being healthier, having better access to services to support mental and physical wellbeing, and being wealthier than their present-day counterparts.

There will be four primary areas that will enhance financial services for delivering improved financial wellbeing:

1. Data

It is expected that by 2030, data will fundamentally transform the nature of financial services and most banking sectors. So, it will be at the heart of how banks will deliver value to customers.

Customers are becoming more aware of the value of keeping their personal data safe and secure. As they turn to be more data-aware and conscious about the data they share, with whom, how, and for what purpose- they will need to be assured that their data will be safely preserved. Hence, as banks have long become the safest place to keep consumers money for hundreds of years, this could even become the safest place for their personal data as well in the near future.

2. Business Model

By 2030, traditional boundaries within the financial services will disappear, wherein the banks will allow customers to choose the services from a range of service providers based on their needs. Account aggregators will be meant to facilitate the free flow of credit in the economy, giving lenders the resources to improve decision quality and efficiency. For this, banks will become the boss of various alliances and capabilities.

The digital interactions will be more streamlined, enabling fintech and banks to re-bundle relevant services around key customer needs and experiences that extend beyond the realms of traditional financial products.

3. Regulation

By 2030, regulation is likely to move away from a product-specified focus towards monitoring the activities of institutions and focusing on the outcomes. There will be major shifts to require regulating bodies to come up with completely new ways to identify and manage risks. Banks will need to respond to the delivery of financial services that will become embedded in a service operating outside of the regulatory perimeter.

New Regtech tools, powered by AI, will enable more efficient and effective supervision of the banking processes. Regulators will use this to share information across national and international boundaries, supporting efforts to combat financial crimes. Blockchains will become the source of trust, wherein it locks data from transaction histories, contributing to more sophisticated risk assessment models.

4. Technology

Technology will make banking experiences more personalised and omnipresent across many devices and applications. This will not only make banking more convenient but also more accessible to the vast unbanked population of today. This will be used by a number of innovations that are transitioning from being emerging into transformative.

Some of the technologies that will have a greater impact on the financial service industries in the next 10 years are- Artificial Intelligence, Blockchain, Biometrics, 5G, Cloud Computing, Internet of Things, AR/VR, Quantum Computing. These will transform the nature of services as well as the way they are delivered and consumed.

The Impact of Technology in Digital Banking

By 2030, technology will redefine bank-customer relationships forever. The technology will have advanced again by 2030 as our lives and communications change.

The rising technologies can have an impact on the broader business landscapes in the following ways:

1. Everything Will Be Connected

A hyper-connected world will be the norm by 2030. Smart speakers such as Google Home and Amazon echo have already captured everyone in today’s household. Customers will be interacting with their service providers through voice and personal assistants, facial recognition, and wearable devices.

The debit/credit cards to tap at a dedicated point of sale or today’s mobile payments will be replaced by secure voice command or a facial expression. Many of the smart devices still emerging will become a common thing by 2030.

2. Distributed Trust

In the future, banks will have to reconsider their position as mere financial service provider. This means banks will need to go beyond money and integrate with a broader ecosystem of alternative services.

It will lead to the redefinition and monetisation of trust, leveraging their heritage and experiences to gain a distinct advantage over new entrants. In the future, customers should be able to trust that the automation and decisions made on their behalf are traceable, reconcilable, and transparent to them.

3. Digital Currencies

The rise of digital currencies issued by the central banks and corporate players will further accelerate the transformation of products and services. This digitisation will bring greater financial inclusions overall, along with broader transparency and better real-time transaction processing.

These will also help eliminate many issues involved in cross-border payments and currency exchange, delivering value and experiences to consumers. As cash disappears over the next decade and digitisation reaches its next logical step, opportunities for a shadow economy, worker exploitation and fraud will continue to be reduced.

4. Payments

Rewards, partnerships, and loyalty points will become the key differentiators among payment platforms, thereby providing maximum benefits to customers. Payment terminals will be removed in favour of integrated real-time payment transfer solutions. In the future, customers can just walk into any store, order items, and leave- all that without worrying about the payment options. Payment terminals will be removed in favour of integrated real-time payment transfer solutions within the point of sale systems.

The biggest change will be in the global B2C space as consumers will be free to spend overseas with the international merchants without incurring foreign exchange fees.

Conclusion

Even though the COVID-19 pandemic has hit and seemingly threatened the traditional banking models, banks have become more resilient. Banks will have to adapt to individual customer desires for control and knowledge.

Finezza is a leading lending lifecycle and credit evaluation platform that helps banks streamlining and optimise their performances. Contact us today to know more about our customised solutions.

Neobanking for SMEs: New Opportunities

Updates

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.

Finezza is a leading lending lifecycle and credit evaluation platform that helps banks and NBFCs streamline and optimise their performances. We are the ultimate partner for financial institutions that are looking to tap underserved segments to widen their market share. Finezza’s comprehensive analytics suite and integration support for business intelligence apps make it a strategic investment for customers.

Can Neobanks finally find the path to Profitability in 2021?

Updates

The digital acceleration in retail banking has given rise to the generation of digital-only banks a.k.a. neobanks. These banks exist only in cyberspace and have no brick and mortar branches. These neobanks interact with their customers through digital channels and also focus more on the customer experience which differentiates their offerings from the traditional banks.

However, neobanks are still a fresh entrant into the financial landscape of India and they are fighting the age-old legacy of traditional banks.

Post the pandemic, the dynamics of the industry are transforming faster than ever. There is both positive and negative to it.

Neobanks are facing additional pressure from investors to switch their focus from growth to profitability. While the smaller neobanks are struggling to keep their doors open, the frontrunners are looking for ways to find profitability.

Neobanks in 2021: Challenges to Becoming Profitable

Till now, there has been a steady rise in the number and size of the so-called neobanks. Their ultimate goal is always to create a perfect banking experience and increase their number of customers and valuations. Even though they have had rapid growth success, their revenue and profitability have not yet matched the expectations.

There have been many structural reasons behind this, some of them are as follows:

1. Erosion of Differentiators

Neobanks have always sought to differentiate themselves by offering very distinctive packages of products and services that aren’t widely available with their competitors. Some of their offerings such as the app-based ‘card freeze’ and app-based ‘spending categorisation’ have become a standard across the industry, eroding the neobanks point of differentiation.

2. Convincing Enough People to Switch

For the neobanks to become profitable they will have to convince several people in order to build up a large enough customer base. This means they will have to convince a significant number of people to switch their accounts from other providers. However, this is found to be very difficult with around 70 million current accounts are found to be open. Hence, any significant customer-base growth will take much more time-something that the neobanks don’t have in abundance.

3. Big Banks Own Neobanks

There are a lot of traditional banks in the market that own neobank-like offerings. While the big banks lack the sharpness of neobanks, they surpass them with their levels of resources. However, the fact that these do not offer any long-term success shows how tough the market and its competition can be.

4. Impact of the Pandemic

Every business in the world has felt the heat of the COVID-19 pandemic. According to research by the Curve, which is a service that brings together multiple banks into one, showed that the use of neobanks and challenger banks had dropped by 90% during the pandemic time.

How will Neobanks achieve Profitability?

For reaching the promised land of profitability, neobanks need to find ways to stay ahead and continue to innovate fast. Here are a few routes they should consider:

1. Build up a Subscription-based Financial Marketplace

The traditional banks have spent decades of years building an ecosystem of additional services around their banking operations. Similarly, the neobanks may replicate this much faster and even go beyond to build a balanced portfolio of in-house and partnership-led capabilities.

As they become a one-stop-shop for financial needs, neobanks can open a way to integrate all services in one place. Some of the in-demand and value-added services may be brought in-house with time, thereby increasing the potential profitability.

2. Getting into Business Banking

Businesses involve higher money flows and deposits compared to individuals and are also willing to pay for services that save them both time and money in the long run.

Similarly, the small and medium businesses (SMEs and MSMEs) tend to be underserved and hence are more willing to switch their banks. Golden opportunity, right?

Given the market’s extensive competition, the neobanks can likely cause the emergence of more industry-specific business package lendings. These can be tailored to the needs of retail, hospitality, travel, and e-commerce offering great exposure. This can be their quick way to earn referral commissions.

3. Branching into Banking-as-a-Service (BaaS) offerings

Neobanks can plan to sell their payments and accounts back-end platforms for other fintech companies and thereby build their own interface on top of it. This allows for a speedy scale-up payment volume through the neobanks platforms.

The BaaS commission is lower by 80-90% compared to the client-facing business. Serving as BaaS also creates an economy of scales to payback investment into the platform and cover fixed maintenance costs. Its consolidation may facilitate rationalising marketing costs and balance its growth with profitability.

4. Looking for New Emerging Niches

The main criteria that made the neobanks reach the market is due to their high sensitivity to changes in customer needs and technology. In order to advance to the path of profitability, they need to keep adjusting to the emerging customer needs while doing it at a faster pace.

The global pandemic has triggered a clear pivot wherein the neobanks started their focus on unit economics and profitability. Now onwards they will have to increase the customer monetisation instead of increasing their fees that will lead to decreased customer satisfaction and ultimately lead to a decline.

Conclusion

The highlight feature of neobanks is they are super-convenient, all-digital, and offer better alternatives to the big corporate banks. They are easing the pain that people feel around their money. The neobanks are a logical progression to the current banking systems, especially during this time of pandemic wherein the world has come to a “digital-only” mode of living.

If the popularity of neobanks in India is just rising, they may be on their way to capturing a large share in the market by the end of this year. Neobanks would play a key role to spur savings, investments, and economic growth of the country. They are now free from the constraints and expenses of needing a banking license which also opens up a new and promising path of profitability.

For the digital as well as physical banks, the need to process user data is in high priority always. They will need a dynamic Loan Management System and Loan Origination System to stand out in the competition. This is where Finezza comes into play to help put your business at the forefront of success. Finezza’s end-to-end lending solution is based on putting customer needs as a priority.