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27 Jun 2022

Is Neo-banking replacing Traditional banking in India?


India’s Financial Inclusion Index was recorded as 53.9 in FY22 ending – with ~80% of Indian adults having a bank account. Yet, ‘Neobanks’ have emerged in the banking landscape disrupting the customer experience in new ways.

What is a Neobank – and why does it deserve attention? Neo-banks are purely digital financial institutions, as opposed to regular banks, which can offer online services but continue to rely on their physical locations. Traditional banks use an omnichannel approach that includes physical (branches and ATMs) and digital banking presence. In contrast, neo-banks use technology and artificial intelligence (AI) to provide a range of customised services to customers

The Neobanking market is expected to grow @ CAGR 14% to reach US$ 16.7B opportunity by FY26. In todays’ newsletter, we double-click on what is so ‘neo’ about these banks – and what is driving their growth.

According to a recent PGA Labs survey, customers prefer having an account with neo bank for the long run if the transactional charges and services remain unchanged. Among Neobank users, ~40% customers feel that customer support facilities can be improved, while ~55% feel that cashback and rewards should be better.

While Neobanks are disrupting the banking landscape in India, at current levels they might not be able to fully meet the banking demands of non-tech-savvy customers, especially those living in rural India. Lack of physical presence does not evoke the requisite ‘trust’ that the traditional banks command due to their legacy.Further, Neobanks currently offer a limited number of services, making traditional banking irreplaceable in the overall financial services ecosystem.

Authored by (at the time of writing):

Vaibhav Tamrakar, Senior Vice President - PGA Labs

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