Neobanking up for grabs as digital natives avoid bank branches
Going to a bank for one of its services could soon be a thing of the past.
Millennials, familiar with the internet from an early age, are increasingly comfortable with the idea of neo-banks, or online-only banks with no physical presence, which strengthens the prospects for these banks in India.
The neo-banking market in the world’s second most populous country is expected to grow at a compound annual growth rate (CAGR) of 50.5% over three years to reach $11.65 billion by fiscal year 2025, according to a report by Grant Thornton Bharat released on Monday.
“India’s neo-banking market is set for rapid expansion through outreach to customers across NTB (new bankers), SME (small and medium-sized enterprises) and salaried segments,” says Jaikrishnan G, Partner, Financial Services Consulting, Grant Thorton Bharath.
More than 50% of India’s population is under the age of 28, giving this first generation of true digital natives the power to dictate future consumer trends, the report points out.
Neobanks appeal to millennials, MSMEs, the unbanked population and thin-file customers who seek easy access and instant turnover, according to the report titled “The banking matrix: Emergence of open and integrated neobanks”.
The Indian stack has played a pivotal role in the growth of digital banking in India, enabling banks, non-bank financial companies, fintechs, government agencies and other financial services players to enable digital service delivery , paperless and cashless.
Neobanks will also face their own challenges.
“The neo-banking industry may face challenges from established players, their dependence on banks, security issues, regulatory ambiguity, increased competition from fintechs and super apps. that combine elements of e-commerce, payments and financial services on the same platform,” added Jaikrishnan G.
The report also urged banking regulators to consistently monitor neo-banks and highlighted the need for a formal licensing regime in this space.