India's virtual banking market

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Regulation

In 2019, an Indian inter-ministerial panel on fintech has recommended measures to the Department of Financial Services and Reserve Bank of India (RBI) to examine the suitability of ‘virtual banking system’ in the Indian context. The costs and benefits regarding granting a license to virtual banks and possible preparation for an ecosystem. This will enable fintech to deliver retail banking services like extending loans, savings accounts, issuing cards, and offering payment services. Currently, a partnership with a private or nationalized bank enable virtual banking facilities. For example, Digibank a virtual banking platform launched by DBS bank in 2016 received approval from RBI to operate as a wholly-owned subsidiary of DBS.

Moreover, In December 2019, RBI issued guidelines for ‘on tap’ licensing of small finance banks (SFBs) in the private sector. It allows the creation of banks specifically targeting the unserved and underserved small business units; small and marginal farmers; micro and small industries. These guidelines enable payment banks, such as Fino payments bank, Airtel payments bank, and Paytm who have a track record of conducting business for a period of 5 years and minimum paid-up capital of INR 200 crore to convert into small finance banks, catering to aforementioned sectors.  Fintech companies are yet to make formal applications, but it paves the way for India’s virtual banking market to convert for driving financial inclusion in India.

“By providing people with the right incentive structure and behavioral nudges, we can help get consumers ready to adopt digital financial services.” – Nilesh Agarwal, co-founder & CEO, Yelo.

Despite formal regulations or licensing mechanisms in India, many players have established the “Indianized” version of virtual banks, commonly referred to as “neobanks” in the country. These banking start-ups are operating in affiliation with a traditional bank.

Currently, there are 10 virtual banks (neobanks) operating in India in partnership with traditional banks.  

Current scenario

DBS bank enters the Indian banking sector with its virtual banking platform – Digibank. The bank has both institutional and retail strategy around digital rollout. It focuses on ease of convenience by provisioning its customers for online loan applications up to 15 lakhs and opening a fully operational bank account in 90 seconds.

“Our digital platform allows a fully intuitive digital (both self-service and assisted) onboarding; while our advanced analytics integrates multiple data sources and analytics to profile and decision customers,” – Anand Natrajan, COO

Kotak Mahindra Bank launches the ‘811’ service in 2017, and is an app-based digital zero- balance account facility. It offers over 100 mobile features including complete financial transactions, managing investments, fund transfers and supports other e-commerce apps. The bank positions itself on inclusivity, where the messaging involves the all-in-one 811 digital bank account.

“We said that consumers often feel judged when they go to a retail institution. The nature of the very product in itself is non-judgmental as it allows customers to open an account on the 811 banking app with zero balance with just two documents—Aadhaar card and PAN card. We decided to use an emotional route and communicated an egalitarian society a higher-order message which I think is always relevant in a diverse country like India.”Elizabeth Venkataraman, Senior Executive Vice President & Head of Marketing, Kotak Mahindra Bank.

Epifi has launched in May 2019 and is currently in a pre-launch stage, where it is building the technology stack to offer digital banking solutions.  It will target millennials, which will include savings account and debit card facilities. This start-up is by former Google Pay executives Sujith Narayanan and Sumit Gwalani, raising US$13.2 million seed funding from Sequoia Capital, Ribbit Capital, Hillhouse Capital, and angel investors, including David Velez (Founder of Nubank), and Kunal Shah (Founder and CEO of Cred)

“The intent is to deliver a product that touches consumers across streams, which is intuitive and simple, demystifies their finances, and helps them spend intelligently. From a consumer finance perspective, they are looking for a unified experience,” – Sumit Gwalani

Serial entrepreneurs Anish Achuthan and wife Mabel Chacko, along with Ajeesh Achuthan in 2016 started Open. Open as a virtual banking platform, targets small businesses and enables them to manage cash flows, automate accounting and get easy access to a credit line. Among various offerings, it provides Open+ card, a business credit card with a 30-day interest-free credit line, for venture-backed start-ups and Layer, a unique programmable bank account for developers.

“We are trying to build an offline payment mechanism with banks, where an offline payment can automatically be linked to the right invoice. Second, we want to use analytics to predict cash flows and create meaningful insights for banks and NBFCs. Third, we are also looking to digitize meal vouchers, by providing additional pre-paid cards.” – Anish Achuthan

NiYO Solutions serves as a “neo bank” that relies on traditional financial institutions (Yes Bank and DCB banks) and offers to customers additional features such as, lending and insurance. It aims to grow its customer base from about 1 million currently to 5 million in the next three years.

“Right now, we are focused on the liabilities side, which is focused on the salaries account. But, very soon, we would like to expand into lending and wealth management. Each of that will require its own product cycle testing and rollout.” – Vinay Bagri, CEO.

A personalized neo banking service, ‘येLo’ (pronounced ‘yelo’), provides a range of innovative products and services to address immediate short-term needs such as day-to-day cash flow management as well as long-term needs such as future medical shocks. It is to meet the needs of blue-collar workers, helping to on-ramp them into the formal financial segment. Partnerships with financial services providers such as ICICI and Federal Bank help them to target corporates and SMEs for aggregating customers and providing them personalized financial product offerings. 

Founded in 2019, Hylo is a neo banking platform with simple and easy to use interface in the hands of SME owner. It addresses SMEs’ core pains on receivables. Hylo brings Integrated banking, with a real-time reconciliation for invoices and payables connecting the whole distribution chain.

InstantPay is an inclusive and neo banking platform coined with the objective of driving financial inclusion in India in a responsible and sustainable way. Founded in 2013, its neo-banking facilities are provided in partnership with ICICI bank, SBI, Federal bank to name a few. InstantPay is reinventing the practices of a traditional bank. It aims to ensure that they are cost-effective and convenient, in line with the requirements of today’s SMEs.

“Our banking solution is designed to address the unique requirements of SMEs. It does away with the hassles of traditional banking processes & policies and provides a seamless and user-friendly experience.” – Shailendra Agarwal, CEO

Launched in Nov 2019, a neo banking platform for kids, students and teenagers to manage money, while being supervised and monitored by parents. Walrus is building the next-generation banking and rewards platform for the 100 million teenagers in India with the objective of giving them financial freedom and teaching them good money habits.

RazorpayX is a business banking platform built for disruptors. It brings effectiveness, efficiency, and excellence to all the financial processes coupled with banking services. RazorpayX offers a current account, credit cards, and compliance services for small and medium firms.

Topic:

The Future of Banking

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