Neo banks: Seven important details of India’s newest banking facility

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Did you know there are multiple banks are there in the country without a single physical branch? These are called neo banks, the new kid on the block. Very few are aware of these organisaitons, but almost a dozen of neo banks are operating in the country for the past three-four years. Money9 gives you a brief guideline on what neo banks are.

What is Neo Bank

Neo banks are basically digital banks that don’t have any branch at all. They exist online and deal through online medium.

These banks don’t have banking license of their own. Generally, every neo bank is attached to a commercial bank and does all transactions through this bank.

Operation

Neo banks use high-end technology like artificial intelligence. Technology-based interfaces offer highly personalised customer services. The app learns about a customer’s preferences through his/her transactions patterns and other details.

The operational costs of neo banks are low and customers pay lower fees compared to traditional commercial banks.

Usually payments banks are referred as neo banks.

Launched in 2006

The first neo bank started its operation in India way back 2006. The first bank was Fino payments bank, headed by Rishi Gupta. In FY21 the net revenue of this bank stood at almost $100 million.

Since then 26 more banks started their operations in India. Currently there are 27 neo banks are in operation across the country. Paytm payments bank was the second Neo bank followed by Razorpay, SBI Yono, Kotak 811, Digibank, Hylo, IPPB, jio payments bank, Open, Airtel payments bank, Finin, Jupiter and others.

Revoult is the latest to enter this sector. It got the license in April this year.

Customer base

These 27 neo banks serve at least 5 crore customers every day. They are growing at a fast pace. Almost 70% of the customers are below 35 years of age.

Neo banks eliminate the entire process and paperwork of account creation. Customers can open an account at any time and at any place and conduct any type of transaction within a minute or so.

The backbone

Since RBI is not permitting 100% digital operation of the commercial banks, they are using this platform to tap customers. Every bank is charging a percentage against a transaction from the neo banks.

Large commercial banks such as SBI, HDFC Bank, PNB, ICICI Bank, Kotak Mahindra Bank, RBL Bank, Yes Bank and other private players are in this segment. Service providers such as Visa, Mastercard and Rupay are also in this game.

Path ahead

Neo banks are the future of the banking industry. The first one was introduced in 2006 and the second one in 2010. But between 2013 and 2020, a total of 24 neo banks were sanctioned by RBI which works out to more than three banks in a year.

Experts feel that more and more players will come into this space. The technology makes the space easy to use and there is a huge market.

Global market

According to Zion Market Research, worldwide the neo bank sector was worth $18.6 billion in 2018 and was projected to grow at a CAGR of 47% between 2019 and 2026, generating about $400 billion by 2026. The major players in this segment are InstantPay, Niyo, Open, and RazorpayX.