This insight summarises the learning from a conversation with three of India’s leading CEOs of neobanks in India, viz., Dr. Jasmin B Gupta – CEO and Co-Founder at LXME, Vaibhav Joshi – CEO and Co-Founder at Easy Pay and Bala Parthasarathy – Co-Founder and Chairman at FREO.

Over the last four years, more than 30 neobanks in India have been competing, acquiring customers, and creating a niche in the banking and financial sector. Despite the ground-breaking success, India’s biggest challenge lies in the lack of formal digital-only banking licenses. The other challenge is that most neobanks with a sponsored banking license do not have complete customer ownership. Instead, they work on revenue-sharing models with incumbents, resulting in paper-thin operating margins.

RBI, with its recent digital lending guidelines has reinforced its stance that a digital only license is not needed to support the growth of this sector. Neobanks can dip their toes into the sandbox, gaining experience working with existing banks. This can provide the necessary impetus to drive innovation to improve access and consumption of financial services in the country.

We discussed three key questions with the leaders of neobanks in India.

• Will neobanks crack the sustainability and profitability code?

• How do neobanks own and master customer journeys?

• What success metrics define the growth of neobanks?

Will neobanks crack the sustainability and profitability code?

Currently, India has incredible growth in the number of neobanks in the country. Neobanks help bring

• differentiation via customer experience enhancement
• target underserved or unserved segments
• new product / service innovation.

While a traditional branch has run a brick-and-mortar setup on the main street for the past 100 years, the main street for neobanks is on the App or Google Play store. It simply isn’t the same. Numerous other apps are competing to solve the same customer problem pertaining to savings, spending and lending while bringing in a new-found sense of innovation at the same time. So, neobanks need to bring something different to the table; something faster, better, cheaper, more efficient and user-friendly.

Sustainability for neobanks will not come from savings; it comes from lending. After all, lending is the key growth opportunity in the financial services industry. Hence, to be sustainable, we need to solve the lending challenge.

How do neobanks own and master customer journeys?

Customer journey innovation and transformation act as the launchpad for investors when it comes to making their decision to invest in a particular neobank. India has become an investor hotspot in the last five to seven years.

While neobanks have mastered the art of winning the customer acquisition battle, the challenge now is customer retention and engagement. How do we get customers hooked on our products? How do we get them to keep coming to the app repeatedly? How do we provide value-added services and products that make it really useful for the customer to keep wanting to use our products?

Neobanks need to focus on these important engagement tools:

• Community building
• Clear and targeted segmentation
• Personalised approach using AI

Most neobanks have also begun operating differently, catering to very niche markets. These can range from freelancers and farmers to street vendors – very different and niche markets.

What success metrics define the growth of neobanks?

In the Indian context, the measure of success for neobanks is profitability. Today, acquiring a customer is not enough. You need to keep them genuinely engaged with you. Hence, getting the customer at a low cost, keeping the customer engaged and becoming profitable are the most important factors neobanks need to target.

Below are three stages, creating a framework for neobanks to prioritise:

• Acquire
• Service
• Engage

The intelligence and speed at which neobanks can execute these stages is what will make or break them. There are sub-parameters that neobanks can focus on to make these three stages more feasible to achieve. These sub-parameters are;

• acquisition rate,
• monthly active users,
• cost per issue in terms of service,
• number of journeys managed,
• number of interactions, and
• transaction value.

How neobanks can match up against today’s challenges

Competition among incumbent banks, technology giants, and fintech startups is high in the Indian neo-banking landscape. As customer demands and needs evolve dynamically, the challenge lies in continuously improving customer experience and integrating themselves into every aspect of a customer’s life. In this competitive environment, neobanks need to voice a commitment to deliver an end-to-end banking experience with:

• ease of availability of financial products,
• digitally-enhanced features,
• excellent customer services, and
• resilient security measures.

Check out our latest immersion to get an interesting perspective from leaders of neobanks.