Here's Why One of India's First Neo Banker is Optimistic About Open Banking in India

Technology will soon make traditional banking system redundant but is India ready for it?

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In today's age of digitisation, it is all about the customer and improving his/her experience. To achieve this goal, banks and fintech companies have started to support each other. This change in the ecosystem has invented the concept of neo banking which can be rightly dubbed as the new era of the banking industry.

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Vinay Bagri, who has worked with banks like Standard Chartered, ING and Kotak Mahindra, believes that the growth of traditional banks is stalled due to overheads like setting up branches, manual processes and high dependency on human resource, which eventually shoots up the cost for product making it expensive for the customers.

However, he realised the power of technology when ING launched its digital bank - ING Direct. This venture itched him to start something similar for the Indian market. In 2015, he partnered with Virender Bisht, who was then working with MobiKwik, to start NiYO Bank.

Unbundling Banking

The fintech startup is simply based on the open banking concept and its core business model runs around the neo bank model. However, to run a bank in India, one needs RBI's approval and for a startup to seek banking license is next to impossible. Having said, neo banks could collaborate with banking entities to roll out their products. This is exactly how NiYO's partnership with banks like YES, DCB and others came into existence.

Talking about the opportunity for neo banks, Bagri opines that India is at the nascent stage and domestic digital banks may opt for European models to scale, where multiple open banks will operate catering to niche demands.

"My personal view is that the scope is huge. In India, if you look at banks, they prefer products that are more commodity in nature and they do not prefer marketing products that are a niche or are tailor-made for a certain segment. However, this is where the opportunity lies," he said.

Presently, the neo bank offers two products – salary accounts for the blue-collar workforce and global card, which cancels the need for forex cards. The entrepreneur claims that the neo bank acquires around 4000 customers every day and will onboard 2 million customers by end of this financial year while on the global card front, NiYO is acquiring 500 customers every day and by end of FY20, it is looking to serve half a million customers.

The Direction

Considering there is hardly any regulation to manage digital banks in India, neo banks are presently overseen by the traditional banking laws. Having said, the RBI has digitalisation on top of its agenda and has rolled several new laws to support it.

In fact, the apex bank has rolled out new categories of banking license – small finance bank and payments bank, which has been a significantly a successful move. Bagri feels it is only a matter of time that RBI would roll digital bank license segment.

"If you look at Europe, Hong Kong, Australia and even the US, they all have a separate license category for digital banks. We hope that in the next few years, the RBI will have a similar licensing category with criteria that will safeguard customer's interest," he said while adding that, "Globally, we are one of the most robust banking systems today. So, they will do their due diligence and come up with regulation keeping in mind the risk parameter and the digital economy. Eventually, neo banks are about adding value to the end user and that's what RBI always promotes."