A Project On

NEO banks and its recent trend

Submitted

In partial fulfillment of the requirements for the award of the degree

of Master of Business Administration

By

Sanjay Kumar Meena

Enrollment No: 21MBA7350
Master of Business Administration
Semester III (2021-22)

In

Apex institute of Technology

Business Management

Chandigarh University
Gharuan, Mohali
Punjab, India
140413

Sept.2022
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BONAFIDE CERTIFICATE

Certified that this project report “Neo Bank” is the bonafide work of “Sanjay
Kumar Meena” who carried out the project work under my/our supervision.

SIGNATURE SIGNATURE

Dr. Bhupinder Chahal

HEAD OF THE DEPARTMENT SUPERVISOR
(MBA Business Analytics)

Submitted for the project viva-voce examination held on

INTERNAL EXAMINER EXTERNAL EXAMINER

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Certificate of Internship
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Acknowledgement

I would like express my thanks and gratitude to my mentor Mrs. Alka Ma’am
who allowed me to have an industrial exposure in this industry of Neo banks. It
was a very wonderful learning experience for me to do internship in such an
environment in tackling various challenges with various techniques.
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Abstract

Online Banking is one of the most important financial activities which will be
carried out by any person who holds a bank account. There are various
activities that can be carried out once you log in to your bank account. Once a
user logs in he or she can check the bank balance, check bank account
transaction history or account summary, add beneficiary accounts, transfer
funds to another account, download account summary. Whenever we deal with
a banking system main concern should be the security related to banking
transactions and account login activity.

The Online Banking System as of now deals with a single sign-in log on and it
will not be secure as expected. If a customer logs on from an unknown system
outside the usual access device there are chances that it can be hacked easily
and this might end up with a lot of issues. There are chances that if the user
forgets the password and supposedly changes it and writes down the same
somewhere and forgets to erase it or scramble it, there are chances that anyone
can misuse the login.

This project aims at creation of a secure Internet banking system. This will be
accessible to all customers who have a valid User Id and Password. This is an
approach to provide an opportunity to the customers to have some important
transactions to be done from where they are at present without moving to bank.
In this project we are going to deal the existing facts in the bank i.e.; the
transactions which takes place between customer and bank. We provide a real
time environment for the existing system in the bank. We deal in the method
transaction in the bank can be made faster and easier that is our project is an
internet based computerized approach towards banking
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Contents

CHAPTER TOPIC PAGE

Chapter I: Introduction
 Chapter II: Summary
 III: Evolution of Banking in India

 IV: What is Neo Banks?

 V: Are Neo banks the future of banking?
 VI: Needs of Neo banks
 VII: Challenges
VIII: How to choose a Neo Banks
 IX: Plans of Neo banks in India
 X: Neo banks v/s traditional banks
XI:  India’s top Neo banks I Freo
II Fi Money
  III Jupiter
IV Instantpay
V Fampay
VI Mahila Money
  VII Niyo
VIII Razorpay
IX Chqbook
X ZIKZUK
XI Akudo
XII finin
XII: Advantage and Disadvantage I Advantage
II Disadvantage
XIII: Questionnaire
XIII: Conclusion
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I. Introduction

Financial markets are crucial to the economic and social structure of

contemporary society, and financial activities have an impact on the economic
development of nations all over the world . Data are invaluable assets in the
financial markets. The quality of the information that investors use to make
trading decisions and how rapidly they can make investing decisions both have
an impact on how successful investors are. However, as financial activities and
information systems have become more contemporary, a wealth of information
has arisen, creating enormous financial challenges. According to data, many
traders are unsure of how to begin examining financial assets. Both the
financial sector and the academic community have done a great deal of study on
the behaviour of financial markets during the last few decades.

Under these circumstances, a new form of bank operation model called the
intelligent online banking system was developed employing artificial
intelligence technology. Customers can benefit from more individualised
and intimate service. The advantages of online banking are clear: there are
fewer institutions, excellent staff, and lower costs. Reduce operational
expenses for commercial banks, offer financial products and services with
cheaper fees and more convenient channels, give consumers better interest
rates than traditional banks, gain a competitive edge, and create more
room for variations that open up endless possibilities. Traditional banks
stand to gain significantly from the advent of an intelligent investment
service model, but in the network era, with millions of data processing per
second, tens of millions of daily transactions, and real-time acquisition
As a result, there are numerous issues that need to be resolved, one of
which is how to maintain the online banking system's performance,
stability, and scalability. Machine learning has been extensively used in the
financial sector before the emergence of applications like online banking
and intelligent customer service. In particular, with the advancement of
computing power and the widespread adoption of machine learning
technology, machine learning has evolved into an essential part of the
financial ecosystem. such as risk analysis, autonomous asset management,
and loan approval.

II. Summary
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These businesses rely on bank partners in India rather than holding their
own bank licence in order to provide authorised services. This is due to the
Reserve Bank of India's (RBI) current prohibition on banks going fully
digital (though some foreign banks offer digital - only products through
their local units.) The RBI has made clear that it prioritises banks' physical
presence and that companies that provide digital banking services should
also have some physical presence.
Neobanks are businesses that provide customers with a less expensive
option to traditional banks. They provide things that traditional banks do
not and do so effectively. You may think of them as digital banks without
any physical branches. They use technology and artificial intelligence to
provide clients with individualised services while saving costs.
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III. Evolution of Banking in India

Evolution of Banking in India

India’s financial awareness has grown over time. People are investing in
traditional securities like bonds, fixed deposits, mutual funds, and crypto. While
we’re learning the latest in finance, let’s not forget its rich history.

Even before independence, India’s banking system achieved great strides.

History and civics textbooks describe the establishment of the Indian
democratic constitution and its many features. However, you probably do not
know about India’s banking history. Read on to find out more information.

The beginning: before 1947

Pre-independence India had 600 banks. The Bank of Hindustan (1770-1832)

was India’s first bank, while the Oudh Commercial Bank (1881-1958) was the
first commercial bank.

Unpredictable bank failures forced the government to act. And the government
passed the Banking Regulation Act of 1949 to regulate banks and prevent
financial disasters.

Nationalization wave: after 1947

The Indian government nationalized banks, including the RBI, in 1949 under
the Banking Regulation Act. Before the Act, all central banks were privately
held, providing their owners with an unfair advantage. The Act encouraged
rural residents to use banks and discouraged them from using moneylenders.

Modern era: 1991-present

After the 1990s, the Indian government promoted foreign involvement in the
banking industry. This brought global banks and private investors to India,
leading to innovations like ATMs and e-banking. Private sector banks were the
most prominent development during this time.

The government permitted private banks when it formed the Narasimham

Committee in 1991 to stabilise nationalised institutions. RBI and India’s
government eventually treated private and public banks equally. Later, payment
banks were created. So far, there have been numerous innovations made to keep
the financial system moving in the right direction
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IV. What is Neobanks?

Neobanking is a term used to describe a type of banking that only takes place
online and operates without a physical branch network. Neobanks typically
offer a comparable range of services to traditional banks. Neobanks help with
practically everything, from creating accounts to determining a person's and an
organization's creditworthiness.

Digital banks and neobanks are frequently used synonymously. It's important to
keep in mind that the digital bank is often an online-only partner or a subsidiary
of a traditional bank, even if both types of banks provide just digital services.
Neo-bank, on the other hand, is a private financial technology company that
operates virtually.

Neobanks have gained popularity among tech-savvy people who prefer to

handle their affairs on their mobile devices because they provide higher interest
rates and lower charges.
Recently, there have been numerous new advancements and changes in the
banking industry, particularly as the focus on the digital economy and consumer
behaviour have changed. Today, the vast majority of transactions take place
online, making it essentially unnecessary to visit a bank location to conduct
routine banking business. Many members of the younger generation conduct all
of their essential banking activities online and have never even set foot in their
local branch. Neo banks are the latest innovation in the banking industry.
By dismantling the traditional banking structure, these banks have opened up a
vibrant market for contemporary banking.

A digital bank without any physical locations is known as a neobank.

Neobanking only takes place online, not in person at a particular location.
Many financial service providers appeal to today's tech-savvy clientele under
this broad umbrella. Neobanks are fintech companies that offer digital and
mobile-first financial solutions for lending, payments, and money transfers.

Neobanks rely on bank partners to offer services that are covered by bank
licences because they lack their own bank licence.
There is a disconnect between what traditional banks offer and what customers
want as the financial environment shifts towards customer experience and
happiness. Neobanks are also attempting to close that gap.

The legacy-based infrastructure of the majority of traditional banks is holding

them back. As a result, when it comes to providing financial services to help
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SMEs, such as a payment gateway, an invoicing programme, and multiple

perspectives of cash management, among others, they fall short.
It only seems sense that banking services can converge with other financial
services in light of this imbalance and the explosion of mobile technology.

Neo banks are a brand-new and innovative idea in the banking sector. Neo
banks are digital banks without a network of physical branches, to put it simply.
Digital or mobile banking solutions enable the complete banking procedure to
be done online. The majority of banking requirements are handled by these
banks, including lending, money transfers, personal finance options, and
payment processing.

What Factors can contribute a Neo-Bank to Fail?

 Regulatory and compliance factors can become primary reasons for neo banks
to not succeed in the financial space. For example, in India, the banking
regulator RBI has not yet granted a banking license to any independent
company to solely act like a bank without a branch
 The products offered by neo-banks are generally fewer. Sometimes due to
administrative complications, neo banks are unable to offer mortgages and
other lending facilities
 Neo banks do not offer the core banking facility and hence, HNI customers,
who prefer to do business in person are not attracted to this kind of bank
 While neo-bank has become a buzz word and a fascination among millennials,
it is still not being used by large masses because of safety and security concerns

How does a Neo-Bank Work?

As the differences in business operations, the business model of neo-banks too

is quite different from that of a traditional bank. Artificial intelligence with the
help of data analytics mainly drives the decision-making process of a neo-bank.

With no physical presence, the fees are considerably lower than traditional
banks. However, like traditional banks, they make money for themselves from
the net interest collections. Sometimes, the services rendered are better than
traditional banks because of the latest technological improvements.   
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Prominent Neo-Banks:

Name of the
Services Rendered
Neo-Bank

Uni Cards, Forex Cards, Loans, and Money Transfer,

PayZello Account Opening, Virtual Debit Card, Expense
Management

Smart Contracts, Crypto Currencies, and Other Block chain

InstaDApp Assets Deposit Account, Decentralized Asset Lending and
Borrowing

Credit Payment, Banking, Payment Solutions, and

0.5Bn
Remittance, Goal-Based Savings, Consumer Durables,
FinHealth
Gold, Health Care, and Government Benefits

Foreign Exchange Card with Savings Account, Employee

Niyo Solutions
Benefits System, Travel loans and Early Salary Advance

Automated Account, Current Account, Payment Gateway,

Open Cash-Flow Management, Tax, and Compliance
Management Solutions

Payments, Current Accounts, Cheque Book, Cheque Book,

Razorpay X Credit Card, Payroll Management, Customer Relationship
Management

Walrus Payments, Savings, and Debit Cards

Forex Services, Multi-Currency Foreign Exchange Card,

Forex-Kart
Traveller Cheques

Neo-Bank Credit, Savings, and Investment Products

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Institutional Investors Funding India’s Neo-Banks:

Name of the Neo-

Institutional Investors
Bank

Horizons Ventures, Tencent, JS Capital, Social

Niyo Solutions
Capital, and others

Tiger Global Management, Tanglin Venture Partners,

Open
ICICI Bank, and Others

PayZello Axilor Accelerator and Iii Consulting

Pantera Capital, IDEO CoLab, Robot Ventures, and

InstaDApp
Coinbase Ventures

Matrix Partners India, Omidyar Network, Fair Finance

0.5Bn Fin Health
Fund, and AngelList

What new forms of Banking have emerged in India?

With the motive of financial inclusion, and access to financial services, on the
recommendation of the Nachiket Mor committee constituted by the RBI in
2013, the regulator commenced issuing licenses to two types of banks (other
than traditional banks) :

1. Small Finance Banks: To offer deposit and lending facilities to low-income

groups including credit deprived farmers, small shopkeepers, MSMEs, and
unorganized businesses
2. Payments Banks: To offer payments for utilities, fund transfers, and small
savings with fewer costs and the latest technology
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V. Are Neobanks the Future of Banking?

The fact that neobanks are not reliant on a physical network and offer a
completely digital service puts them ahead of traditional banks. It makes them
more appealing to the younger generation and SMEs, a key growth area for
them. Their technical systems’ modernity and simplicity, as well as their low or
no-cost accounts, greater savings rates, and tailored financial solutions, may
position them as industry leaders in the coming years.

The Future of Neo-Banking in India and the World:

Neo-banks are at the forefront to revolutionize the financial services space,

globally.

 Between 2016-2020, the neo-banking market has registered a CAGR of 50.6%

 By the end of 2030, the neo-banking market is projected to reach $2.05 trillion.
CAGR of 53.4% 
 The regions of Indo-Pacific and Europe are poised to provide excellent business
opportunities for neo-banks if regulatory relaxations are provided by central
bankers
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 China is predicted to be the best country for the neo-banking business to thrive
by 2025
Digital transactions grew to 90%, from 232,000 to over 430,000 in the last three
years from FY19 to FY21. These numbers only suggest that neo-banks have a
great potential to grow in India, however, it is also important to understand the
approach of neo-banks towards managing the hindrance concerning regulatory
norms, data security, and API integration.   

Neo banks and Budget 2021

Although a significant focus of the budget was placed on restructuring the

ailing banking sector, the FM has also created room for Fintech growth in the
near future. The FM announced the allocation of RS.1500 to boost digital
payments. This recognizes the growth of fintech firms which also includes Neo
banks in the last 5 years and also their potential.

This will further lead to increased adoption of digital payments. In addition to

this, the FM also announced the move to set up GIFT City (Gujarat
International Finance Tec-City). This further recognizes the importance of
fintech like these digital Banks in the banking sector and the need for Fintech
hubs throughout the country.

Closing Thoughts – Future of Neo banks

The future of a fully-fledged Neo bank seems steep. This is because it would
involve several changes made to the regulation put in place by the RBI in order
to recognize them with a banking license.
The next challenge would be gaining trust in an environment where clients find
it hard to trust traditional banks as they too have been increasingly failing in the
recent past. But their introduction would eradicate several barriers. The first
being the physical and geographical challenges. The Indian population still
remains severely under banked. These digital banks would lead to a rise in
inclusion throughout the country to all areas with internet connectivity.

It is already evident that traditional big banks have realized the importance of
Neo banks. This is primarily because Neo banks have exploited the cracks in a
traditional banking system. This has forced them to develop partnerships with
Neo banks as customers demand faster and better services online.
This demand from customers has only intensified during the Covid-19 era
which promotes lesser contact. Further, the online segment offers huge growth
prospects to a traditional-Neo partnership. So one can expect to see a greater
role played by Neo banks in the near future. 
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Traditional banks are using neobanks to reach out to tech-savvy customers

According to a report by management consulting firm Redseer Strategy

Consultants, neobanks in India are just getting started and have a lot of room to
develop. Personalised experiences, data - driven insights, improved user
interfaces and value - added services can all help neobanks cement their
position among India's retail banking clients.

The Indian fintech market - valued at $ 31 billion in 2021- is the world's third -
largest fintech ecosystem after the United States and China and primed for more
disruption with the emergence of neobanks.

The Reserve Bank of India (RBI) currently prohibits banks in India from
becoming totally digital. Neobanks thus cannot get bank licences and must rely
on bank partners to provide services.

Jupiter, Fi, Niyo, and RazorpayX collaborate with established banks. OneBanc
Technologies, an AI - driven neobanking firm, recently collaborated with Visa
to issue India's first debit and credit card without a magnetic strip. Federal Bank
has launched more than 300,000 accounts with neo - banking partners.

Similarly, Niyo Global, a fintech company, has launched a digital savings

account in collaboration with SBM Bank India and Visa. ICICI Bank has also
partnered with Niyo to offer prepaid cards to customers who operate micro,
small, and medium businesses (MSMEs).
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VI. Needs of Neobanks

India has been gradually moving towards a digital economy over the few past
years. The vision of the digital economy was given a further push in the
demonetization era as well as the introduction of UPI as a payments interface.
Furthermore, the Indian start-up sector has generated many unicorns in the
fintech space that have become global names over time. This growing
importance of the fintech sector and the need and reliance on digital banking
has given rise to the neo banks in the country. 

The average Indian today is making more online payments than relying on cash
for their basic needs to bigger financial transactions. The growth of giants like
PayTM, GooglePay, PhonePe and BharatPe has shown the categorical shift in
the banking expectations of the consumers and has further increased the
presence of neo banks in the country.

VII. CHALLENGES
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Traditional banks have met all of our financial needs, including loans, deposit
accounts, debit and credit cards, and insurance. The majority of a bank’s
clients’ needs have been met with the assistance of its global network of
branches. By founding Neobanks in India, however, fintech startups and
companies have created a comfortable, hassle-free banking experience for the
21st century.

The use of automation, machine learning, and artificial intelligence have

enabled fintech companies to provide a variety of solutions to the difficulties
faced by traditional bank customers. Neobanks bridge the gap between the
services offered by conventional banks and clients’ growing expectations in the
digital age. They are transforming fintech and may one day surpass traditional
banks.

Many individuals may confuse Neobanks and digital banks. Both offer banking
services through smartphones and other mobile devices, making them
comparable. However, the parallels cease there.

Challenges for Neobanks in India

Despite the many benefits of neobanks, it is still not perfect. Let’s look at some
of the challenges of Neobanks in India.

1. Regulatory and compliance considerations can be the key hindrance to

the success of neobanks in the financial sector. In India, for instance, the
banking regulator RBI has not yet issued a banking license to an
independent entity to operate as a bank without branches.

2. In general, the number of products offered by neobanks is reduced.

Occasionally, administrative obstacles prevent neobanks from providing
mortgages and other lending services.

3. Neobanks do not offer a core banking facility; hence, high-net-worth

individuals who prefer to conduct business in person are not drawn to
this type of bank.

4. Due to safety and security issues, even though neobanking has become a
millennial trend and a topic of intrigue, it is still not widely employed.
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NITI Aayog flags problems with Neobanking model

The government’s think-tank Niti Aayog had flagged several concerns about
neobanks including challenges with respect to revenue as well as viability and
the existing “partnership-based” model.

In its Digital Banks- a Proposal for Licensing & Regulatory Regime for India
report published on July 20, Niti Aayog talks about lack of revenue resources,
obsolete tech infrastructure of partner banks and low-entry barriers hampering
innovation and also allowing non-serious player in the space.

With no physical branches or paperwork, a neobank is a digital bank offering a

range of services through online platforms. It does not hold a licence but
provides services through licensed partner banks.

Neobanks can be seen as a layer over traditional banks but with limited
offerings as they don’t offer large corporate, car or home loans.

Here are the 5 major challenges as identified in the report:

1 Lack of revenue resources

The report suggests that fintechs have a monetisation and viability problem and
thus fail to generate adequate revenue to sustain the model.

“They earn fee-based revenue wherever they act as channel partners (account
opening and onboarding, investment opportunities credit), and potentially earn
a fraction of interchange on payments processed through cards; but other than
these two buckets, lack any other revenue sources,” the report says.

2 No proper regulation for interchange

There is no direct regulation in India for interchange, unlike in developed

markets. In countries like the US, fintechs can earn revenue on interchange by
partnering with small and medium banks but there are no such options in India.
Interchange is indirectly regulated in India through merchant discount rate
regulation. Thus, unlike advanced economies, Indian fintechs can’t generate
profit through interchange.

The report terms interchange as the fee that merchants are charged for accepting
payments made through credit cards, debit cards, net banking and digital
wallets.
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3 Obsolete tech infrastructure of partner banks

There are various loopholes in the business and technological infrastructure of

the partner banks, especially the traditional banks. In many cases, partner banks
often fail to properly cater to the demand and needs of an emerging class of
“digital-native” businesses, which poses a challenge to the business model of
these digital-only banks.

According to the report, “Without the ability to leverage their balance sheet and
their own technological stack to create ‘ground-up’ credit products and user
experiences, their potential will never be fully unlocked.”

4 High cost of capital

In the absence of a licensing framework, neobanks fail to issue low-cost

deposits. Thus, by default they have to rely on expensive equity capital to fund
innovation and operations, leading to increased cost of capital.

5 Lack of regulator framework

There is hardly any framework that can serve as an entry barrier for fintechs
entering the neo-banking space. Thus, companies are intruding into the neo-
banking space, leading to a drop in the credibility of the system. Any company
can now replicate business models and products already existing in the markets.
Thus, there is a lack of concrete drive for genuine innovation.

“As with any ecosystem with low barriers to entry, this context offers
opportunities for actors that are not fit-and- proper to enter the market creating
a consumer protection risk especially on the retail side,” the report says.

Are customers loyal to online pursuits?

Online fashion stores have been in the market for a long time now. They have
garnered interest from all segments but still haven't been able to uproot the
physical stores. Indians tend to rely on the actual existence of stores when
buying expensive products rather than ' adding them to cart ' online.

“Gaining trust from users for a digital - only banking product can be very
challenging initially and have high expectations in the long run. This is a brand
new experience for consumers, “said Kush Taneja, Founder of FamPay.

Neo - banks are built for the digital age, they provide the ease of banking and
pleasure of experiencing innovation from the couch. Xinja, Australia's neo bank
that shut its operations in 2020 due to financial problems that it could not solve
or India's Yelo that laid off all its employees and shut its activity last month due
to a mismatch in product - market fit , illustrate that harboring a lucrative
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business model is challenging for neo - banks . It is yet to be seen how RBI will
act in the next five years , whether it will be neo - banks ' pillar of strength or
let them move forward while hand holding the traditional banking structure.

Cramped up opportunities

Traditional banks have been knocking at the doors of rural India but the wait is
not getting any shorter. These physical banks face a large cost by opening a
brick and mortar branch in the villages so not many are built. If they try going
digital to reach that pocket of the audience, they are unable to find many who
are digitally literate enough to exploit the facilities provided by the banks. Now,
in this situation, if neo - banks try to capture this market, it will not be a
pleasant situation for them because profits are erased from their income
statements already. With low interchange fees and less digital awareness in the
audience, this business model will not swing in their favor.

Hence, neo - banks will have to stick with the urban population or tier 1, 2 and
3 cities where the market is teeming with oodles of companies providing
banking services.

The data pool and innovative

Products every website or application collects various data points of the

customers. And financial information is being shared with different financial
institutions via data rails that are being churned thoroughly by the big and
traditional banks to adapt to the changing needs of the audience and not be left
behind.
“We fundamentally believe that the internet is going to play a key role in India's
economic growth in the next 10 years. There will be more and more digital -
native businesses coming in and creating a significant impact on the economy.
Moreover, these businesses deserve and mostly need a solution that is
optimized for their use case and that is where neo - banks will help them out
with, “said Mehta of RazorpayX.
How does this affect neo - banks? The problem is acute when it comes to
product innovation. All schemes and product baskets are created by the
traditional banking system. Neo - banks cannot introduce fresh product ideas in
the market even though the data points are collected with their innovation and
tech stack.

Big banks can do all that neo - banks are doing while also maintaining a
physical presence. Sure, it is adding to their costs but it is also at holds them
superior.
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VIII. How to choose a Neo bank?

Neo banks may provide a great deal of convenience as a result of their total
digital presence. In terms of their offerings, however, they are largely or
 23

entirely not controlled by RBI at present. Therefore, it is necessary to select one

based on its competence in banking and finance-related risk management.

Before selecting a neobank, there are five essential factors to consider:

1. Determine your banking needs

The type of banking partner one requires depends on the complexity of one’s
banking demands. Before signing up for a neobank, it is advisable to familiarise
oneself with the services offered by one’s current bank, as the majority of
digital banking apps now provide the same range of features as a neobank.

2. Insurance

Banking is a business of trust, and the government promises to safeguard

depositors against default through an insurance scheme. This insurance policy
guarantees that the insurer will compensate depositors if the bank fails to repay
deposits. Not all regulations apply to neobanks. The easiest method to engage
with neobanks is to determine whether or not they offer a private deposit
insurance programme to protect depositors.

3. You are comfortable with technology

Neobanks operate best for tech-savvy individuals who desire mobile banking.
The user interfaces of neobank applications are basic and uncluttered.

4. Money management

You want to improve your money management skills in a society that lives on
encouraging you to spend more and more cash. With their user-friendliness,
neobanks can considerably aid in the design of a reward and goal-based system.
As money saved is money made, such programmes can motivate you to invest
sensibly and monitor all unnecessary expenditures.

5. Account management and reconciliation

If you own a business or are an entrepreneur, you may require many systems to
manage your finances. Neobanks can consolidate all of this information and
provide business insights through their reports, hence reducing decision-making
time.
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How to Choose a Secure Neobank: All You Need to Know

As of 2022, there are more than 250 neobanks in the world.

Neobanks boast an advanced level of security with the help of blockchain

technology.
In the past decade, a new demand came forward; the demand of having an
innovative set of banking features comfortably sitting in your pocket. Fintech
has become a volatile environment with disruptive innovations and solutions
that combine several products into one single application.

As of 2022, there are more than 250 neobanks in the world, which, compared to
the 45,000+ physical brick-and-mortar banks, isn’t much. But, 250 is still not a
small number to choose from. Neobanks boast an advanced level of security
with the help of blockchain technology, AI, and machine learning solutions.
But, how can you select the most secure neobank that operates in your region?

What Makes Neobanks Secure

On a macro scale, the thing that makes some neobanks more secure than
traditional local brick-and-mortar banks is the fact that they don’t need to spend
their cash flow on physical location, upfront costs, rent and office space.

 Regulations
 2-Factor Authenticators

 Regulations

With all the capital they gain, neobanks invest in innovative solutions and
security. Of course, that doesn’t mean that the most advanced and globally
recognized neobanks aren’t regulated by financial entities and are always
compliant with the highest security standards. These standards include a
periodic assessment of vulnerability, risk and testing against potential attacks
and leaks. Neobanks test their blockchain secured networks on a monthly or
 25

weekly basis to ensure that all endpoints are protected. Some of the more
innovative neo banks invest in machine learning algorithms that parse their own
security systems, looking for flaws on a daily basis. If there is a vulnerability in
the blockchain’s node network, the algorithm finds it and alerts the team
responsible. Many neobanks operate not on their own but in partnership with
traditional banks, which allows for additional insurance of funds like a brick-
and-mortar bank would provide in case of insolvency issues.

 2-Factor Authenticators
A two-factor authenticator can come in a variety of forms, the most common of
which would send a code via SMS to your mobile device. This means for each
transaction you must have access to both your online banking and cell phone.
This provides an extra layer of security, aside from passwords and secret
questions. Yes, many brick-and-mortar banks have digital apps that include 2-
factor authentication for credit and debit card purchases, but to be honest, there
are flaws in some of their systems. For example, there are numerous banks that
require 2FA verification for larger debit card purchases or after a certain card
limit has been reached but don’t require 2FA for bank wire transfers initiated
online. The main reason for this is saving money. Since the majority of the
frauds happen through debit card fraud and not through social engineering, this
doesn’t mean that a similar aspect should be neglected.

What Neo Banks Regulators to Trust?

While neobanks operate with a very different business model than traditional
banks, the same regulators apply to all other financial institutions. And, these
licenses are pretty hard to get.

The most common licenses and regulations you should look for when opening a
digital bank account are:
 AFS license (Australian Financial Services). This license allows the neobank to
operate on Australian soil and is issued by the ASIC. It entails a lot, namely risk
management, staff training, compliance procedures, and more.
 26

 ADI license (Authorized Deposit-Taking Institution). APRA is the institution

that gives a financial institution the ADI. This license allows the organization to
conduct banking processes like deposits, transfers and withdrawals.
 FCS (Financial Claims Scheme). The FCS allows funds to be guaranteed up to
a certain amount to be backed up by the government in case of insolvency
issues.
Of course, depending on the region you are in and the region the neobank
operates in, there are different licenses that they could be using, and that could
be issued by different financial regulators like the FCA, ASIC, FDIC, SEC, and
many others.

Social Proof, Reviews & Word of Mouth

I have already done my research, I have checked the regulators and the most
common security practices of a neobank, it’s time to ask friends and start
reading on forums to get the opinions of people.

It’s more important to know if any of your friends use digital banking
applications and ask for their opinions. Read reviews, check trust-pilot scores,
and create an educated opinion for yourself. Some of your acquaintances might
have used one neobank and switched to another for some reasons that might be
important to you. Ask around.

Final Words

With 250 neobanks and counting, choosing a bank that fits your needs, operates
in your region, and is secure. Check the regulations of the institutions you are
considering and ask friends. Compare everything that is important to you, and
don’t be afraid to try things out with small amounts. Remember, with most
neobanks, there is no minimum deposit required.
 27

IX. Plans of Neobanks in India

Although neobanking in India appears to be a relatively new idea, the future looks quite
hopeful, as younger people and businesses seek the services of these virtual banks than their
 28

traditional counterparts. Although neobanks began to appear in 2013, it was not until 2018
that this virtual form of banking flourished in India.

By 2018, 7.7 million Indians preferred online banking, a number that was expected to be
tripled by 2020. Moreover, as E-Commerce and internet firms in India continue to achieve
significant success, the outlook for neobanks is rather positive.
 29

X. Neobanks vs Traditional Banks

Traditional banks have many advantages over neobanks, such as funding and --
most importantly -- customers' trust. However, legacy systems are weighing
them down and they find it difficult to adapt to the growing needs of a tech-
savvy generation.
While neobanks don’t have the funds or customer base to overthrow traditional
banks, they have something special in their arsenal -- innovation. They can
launch features and develop partnerships to serve their customers much more
quickly than traditional banks.
Neobanks cater to retail customers, and small and medium businesses, which
are generally underserved by traditional banks. They leverage the mobile - first
model to differentiate themselves by introducing innovative products and
providing superior customer service.
Venture capital and private equity investors have been keeping a keen eye on
the market opportunities for such banks and are taking an increasing interest in
them. India's neobank startups raised more than $ 230 million in 2020,
according to a report by a fintech research firm.
As of 2020, India had a smartphone penetration rate of 54 %, which is
estimated to increase to 96 % by 2040. Even though 80 % of the population has
access to at least one bank account, financial inclusion levels are yet to
improve, according to a September 2021 PwC report.
 30

Neobanks and traditional banks differ significantly in many ways. The

following table explains these differences better.

Particulars Neo Banks Traditional Banks

Meaning Neobanks are direct banks The traditional banking

that operate exclusively
online without traditional
physical branch locations.
system involves a financial
institution managing money
that its clients deposit in the
bank, while the bank uses
this money to lend to
individuals or businesses
(charging interest).

Banking In some cases Yes

License

Credit Card In some cases Yes

Branches No Yes

Face-to-Face No Yes
Communicatio
n

Characteristics Flexibility Stability

Target Market SMEs, Institutions run by Large Businesses, General

Younger Generation Public

Strengths  Speed: Absence of  Multichannel

expenses related to Cooperation:
maintaining the Interaction with
bank’s branch customers in offices
 31

network. and branches, as well

 Low Commissions: as via digital tools (e-
Some Neo Banks do mail, SMS,
not have application, website)
commissions.  Huge customer base.
 Convenience: The  Trustworthy relations
ability to access a with the customers.
wide network of  Offering a wide
ATMs selection of products
independently and services.
without incurring
additional charges
due to affiliations
with a large number
of banks, 24/7
access via advanced
chatbots.

Weaknesses  Lack of trust  Excessive

 One-way interaction administrative costs.
with customers  Increased costs for
through digital tools. office and branch and
 Expensive IT customer service.
support and online  Costs in offices and
services. branches.
 Loan products are  Change and decision-
limited (no car making time, as well
loans, mortgages, as administration
and other types of (bureaucracy).
loans).

Opportunity  Development of  New technology and

new technology and innovations are being
inventions. introduced.
 Online sales are  Establishing
expanding additional offices in
geographically. various places to
 Service expansion provide greater access
with the
involvement of new
consumers.
 32

Threats  Cybersecurity  Loss of market share.

threats.  Shrinking customer
 Risks associated base.
with being less
regulated than
traditional banks.
 Long-Term
profitability risk
owing to delivering
low-cost services to
attract new clients.
 33

XI. India's top Neobanks

Freo is the first credit-led neobank in India, offering smart and modern
banking solutions to Indian and Southeast Asian millennials, giving them
freedom from non-digital financial services. It provides a digital savings
account called Freo Save, a flexible credit line called MoneyTap, a credit &
EMI card called Freo Card, a buy-now-pay-later facility called Freo Pay,
and Freo Utilities, which allows you to do more with Freo’s suite of financial
utilities.

Freo provides 100% guaranteed security of your data and transaction

reward points. It is one of the most promising neobanks, and is associated
with brands like VISA, Equitas, NPCI, RBI, etc.

With Freo Save’s digital savings account, you can earn up to 7% interest.

Fi Money has the Federal Bank backing them. You can open multiple
savings accounts with Fi Money, some with zero balance. They offer up to
5.1% interest on savings accounts but charge 1% of the interest rate for
premature withdrawals.
 34

You also get a Visa debit card if you have an account with Fi Money, and
your account balance of up to ₹ 5 lakh is ensured.

Jupiter is similar to Fi Money in terms of partnership with the Federal Bank.

The process of opening a savings account with Jupiter is easy and fast.
You get a detailed account statement and support system for any query
you might have.

Jupiter offers zero balance facilities. They also give 1% reward points for
debit cards and UPI transactions. Their automated savings mechanism,
Pots, provides a 2.5% interest.

InstantPay is one of the biggest neobank in India as it offers a banking

platform to individuals and companies of all sizes and capacities. It
processes numerous transactions per day. You can use InstantPay via its
website or mobile application, whatever suits you.

It is known for instant account opening, cash deposits, active account

tracking, and a 24*7 customer support system. InstantPay has partnerships
with banks such as Axis Bank, ICICI Bank, Indusind Bank and Yes Bank.
 35

FamPay allows you to open an account in just a few minutes. It also offers
a unique facility of virtual payment cards for online shopping, domestically
and internationally.

In addition, their FamPay future is a fantastic initiative for the younger

generation to learn more about finance by inviting them to debate and
discuss financial systems and policies.

Sairee Chahal created Mahila Money in partnership with Capital Trade

Links LTD, which is an NBFC (Non-Banking Financial Company). It is a
neobank exclusively for female entrepreneurs from all walks of life.

It provides collateral-free loans without any guarantor at the interest rate of

20% per annum. It allows women to communicate with each other about
their unique experiences regarding work or study.

Niyo has been around for five plus years now and has over 2.5 million
happy customers. It offers several products and services to its customers
with the motto of “making banking smarter, safer, and simpler.”
 36

Niyo has been around for five plus years now and has over 2.5 million
happy customers. It offers several products and services to its customers
with the motto of “making banking smarter, safer, and simpler.”

Before being the one-stop shop for financial transactions in the digital
ecosystem, RazorpayX was launched as an API and dashboard pay-out
platform for merchants. Its software is customised for businesses to
automate their payroll by scheduling invoices.

It also assists in deciding the credit limit of an enterprise. RazorpayX also

performs tasks like limiting corporate expenses, automating tax payments,
and granting urgent loans. Some of their well-known services are 20X
limits, Smart pay-outs, and a business banking hub.

The list of neobanks in India can’t be completed without Chqbook, the first
neobank for small businesses. It aims to empower small business owners
and budding entrepreneurs by offering personalised financial services and
security.

Chqbook’s features include these five pillars:

 Banking allowing current accounts

 Rewards on transactions
 Khata, a digital ledger service to track transactions
 Insurance coverage
 Loans with zero fee
 37

ZikZuk works for the growth of SME founders. It offers founderscard, a

credit card to founders with excellent credit scores. Reward points are also
associated with founderscard transactions.

ZikZuk also offers contact banking to the founders to help manage their
business finance and transactions. It also provides unsecured loans to
entrepreneurs to help with their business funding.

Akudo is the first neobank in India focused on teaching economic freedom

to the youth. It provides a prepaid card to teenagers under their parents’
watch. It also provides a system for families to control the spending of
young teens to teach them the value of money.

Akudo means “peaceful wealth”, and it offers many reward points for
saving to encourage this habit in the young generation.
 38

Finin is another neobank in India which works in the form of an app. It

extensively uses AI technology for easy account opening and management
of the account. It also offers insights to users to improve their finances.
Open acquired it at the end of the year 2021.

It is expected that, apart from widening the reach of Open, Finin will also
add value to Open’s band of SMEs.

Sr. Name of Interest Type of Founders Founding

No. NeoBank Rate account Year
1 Freo Upto 7% Personal Savings Bala Parthasarathy, 2015
Account Anuj Kacker, Kunal
Varma
2 Fi Money Upto 3% Personal Savings Sumit Gwalani, Sujith 2019
Account Narayanan
3 Jupiter Upto 3% Personal Savings Jitendra Gupta 2019
Account
4 Instantpay - Business Shailendra Agarwal 2013
Account
5 FamPay - Persoanl Savings Kush Taneja, 2019
Account For Sambhav Jain
Teenagers
6 Mahila - Business Sairee Chahal 2021
Money Account
7 Niyo Upto 7% Personal Savings Vinay Bagri 2016
Account
8 RazorpayX - Business Harsheel Mathur 2013
Account
9 Chqbook - Business Vipul Sharma, rajat 2016
Account Kumar and Mohit Goel
10 Zikzuk - Business Raj N 2020
Account
11 Akudo - Business Lavika Aggarwal, Sajal 2020
Account Khanna, and Jagveer
Gandhi
12 Finin Upto 5% Personal Savings Suman Gandham and 2019
Account Sudheer Maram

XII. Advantage and Disadvantage

Benefits of Neobanks in India

We can see why a Neobank in India seems to be effective. Let’s look at the
benefits of Neobanks in India:
 39

a. Ease of account opening

Even while the process to open a standard bank account is simpler than in
the past, there is still a significant amount of paperwork and form-filling
required to start a bank account, and some banks require consumers to
visit a branch to open a deposit account. There is no need for consumers
to visit a branch to open an account with neobanks, as branches do not
exist! A mobile phone can open an account in two to three steps.

b. Cost-effective

Neobanks save a substantial amount of money because of the absence of

physical branches. Therefore, there are no withdrawal fees and no yearly
or monthly maintenance fees.

c. Easy-to-use interface

Using advanced technologies, neobanks increase the customer

experience. The applications and websites are quite responsive, unlike
those of traditional banks, whose net-banking websites frequently have
bugs and mobile application lag.

d. A blessing for MSMEs

The process of disbursing funds to vendors and other parties is lengthy,

laborious, and occasionally tedious. Neobanks promote simplicity;
transparently simplify the entire process by lowering the amount of
human labour required and by providing uniform platforms to track the
transfer of money. In addition, various services, such as taxation,
budgeting, and accounting, are provided to MSMEs at reasonable
charges.

e. Hasslefree account opening 

Traditional banking systems have a very cumbersome account opening

process even in the current dynamic banking scenario. Neo banks are a
better alternative to the traditional banking system as they do not have a
tedious account opening process. Customers can open their accounts
instantly and also avail the advanced benefits available with the neo
banking system.

f. User-friendly interface

The USP of the neo banks is the smoother customer experience and
hassle-free banking services. Neo banking is app-based and removes all
the glitches often experienced by customers, especially in the digital
 40

banking of public sector banks. The ease of use ensures a wider

acceptance from the users and a better banking experience. 

g. Lower costs

The costs of operating a neo bank are quite less as compared to

traditional banks as the need for physical branches and related
infrastructure is eliminated. This is also reflected in the banking costs for
the ultimate consumers in the form of reduced banking costs. The
reduction in banking costs is often translated into the form of higher
interest for the customers which is an added advantage.

h. Faster loan processing 

One of the unique features of neo banks is the faster loan approval and
disbursal. Customers need to meet the basic KYC requirements and some
are also eligible for pre-approved loans. Neo banks usually have a
structured process for online verification and KYC submission that
reduces the time taken for processing the loan as well as qualifying for
the same. Therefore, customers can benefit from the availability of
instant loans.

i. Better technology and security

Fintech platforms have technology and security as their greatest

advantage. The level of security therefore available on the neo bank
platforms provides a safe and secure banking experience and many layers
of security that is a necessity in today’s digital banking in the form of
passwords, biometric verification, encryption, 2-factor authentication,
etc. The USP of neo banks in the face of technological advancements is
the use of AI (artificial intelligence), cloud analytics, and robotic process
automation (RPA) which make it a unique banking experience for the
average customer as well as mitigate any potential threats of data breach
and malware. 

The Disadvantages of Using Neobanks

If you don’t like keeping up with technology trends, you should avoid banking
with cutting-edge institutions such as neobanks. If you aren’t comfortable
tapping and swiping your way through brand new apps, you won’t be able to
take full benefit of the possibilities. If you don’t love experimenting with new
technology, neobanks might not be for you.
 41

Because neobanks aren’t legally recognized banks, you may not have legal
remedies or well-defined protocols to follow if you have a problem with an app,
services, or non-regulated third-party service providers. There could also be
some confusion about who will be held accountable for any potential fraud or
errors.

While it is growing easier to accomplish everything online, and neobanks

frequently cooperate with ATM networks, some people prefer to visit a branch
and bank in person. This is particularly true in the case of complicated
transactions. While many neobanks provide robust customer care facilities,
some clients may prefer to speak with a representative in person.

1. No Physical Branches

This is one of the biggest challenges which these banks would face in India if
regulators approved their independent presence. The majority of Indians prefer
speaking to someone from the bank for their transactions face to face. This
allows them to build trust with the respective bank. This is completely absent in
the Neo bank model.

2. Only Tech Savvy customers

Since Neo banks mainly operate through online platforms and apps, they reduce
their customer base to only those who are tech-savvy. This wipes out a major
portion of the market who aren’t comfortable using banking services through
apps and online platforms.

3. Less Regulated

These digital are less regulated and are not even considered fully functional
banks in India. This also means they are allowed to offer fewer services. This
further reduces a potential customer’s trust in them

XIII. Questionnaire

1. Is neobanking new in India?

Ans: Yes, compared to the conventional banking system, neobanking in India is a

relatively new idea that has only existed for the past decade.
 42

2. Does RBI regulate Neobanks in India?

Ans: Although neo banks are not directly regulated by the RBI, this does not mean
they are fully free of its jurisdiction. They are indirectly subject to the RBI’s
jurisdiction.

3. Is Neobank legal in India?

Ans: Neobanks and most of the products they offer are not explicitly regulated in
India. Still, they have to follow circular rules (because they are connected to
regulated realities), and when they burn their products, they have to follow non-
supervising morals.

4. What is the outlook for India’s Neobanks?

Ans: Neobanking is growing increasingly popular in India. As an increasing number

of e-commerce organizations and internet businesses favor neo banking over
conventional banking, the concept will expand in the future.

5. Do neobanks have physical locations?

Ans: Neobanks are digital banks without physical branches. Neobanking is

conducted online, as opposed to at a physical facility.