#5th FINTECH – Neobanking in the Indian Context: Pushing Global Frontiers in Innovation by Raghunandan G

From the experience of writing a “self” cheque and standing in line collecting tokens to withdraw cash, to neobanking, banking in India is witnessing a paradigm shift. To understand this revolution, the stage was set to receive Mr. Raghunandan G, CEO & founder of Zolve. Before Zolve, Raghunandan founded Taxiforsure and sold it to Ola cabs for $200 mn in 2015. In addition to running Zolve, he is an angel investor in multiple start-ups, including Vedantu, Bounce & Ninjacart. Mr. Raghunandan’s accolades include being featured in Forbes 2014, 40 under 40 list, and also IIM young alumni award and is an avid reader, a marathon runner, and an Ironman triathlete. 

Ram Venkatramani, the skillful and knowledgeable moderator for the session, kicked off the discussion by pointing out limited awareness about what Neobanking is, highlighting the typical confusion with digital banking. 

What is Neobanking?

The ability to transact without taking a day off in the chosen mode- be it the voice of vernacular language, without the need for any paperwork, all at the convenience of your fingertips is what Neobanking is all about. Neobanking aims to make the whole banking experience seamless, giving both the customers and the banks the ability to utilize banking services’ full potential. Leveraging India’s mobile and data penetration, Neobanks’ aim to amplify this seamless experience. 

Differences between US and India’s fintech ecosystem 

Having understood the basics of Neobanking, it is essential to understand the differences between countries like US and India when it comes to Neobanking. India’s advantage is its financial services ecosystem which is far ahead of systems like Pix of Brazil and FedNow of the US. India is the first one to start UPI, where transfers are instant. At the same time, the US is still batch processing. A simple account transfer takes 3 to 4 days to give a crude cultural and financial shock to people visiting the US after experiencing UPI in India. 

However, the infrastructure providers in the US are significantly better, an area where India needs to improve a lot. The processors that aid banks and act as a bridge between the fintech and bank are much more robust in the US compared to India. Loosely put, for fintechs to get started in the US is just like signing up for AWS in India, it is still slow. 

Another difference is with respect to customer segmentation. There is no customer segmentation in India. Most players like Jupiter target customers across the segments, whereas in the US the customer segmentation is very specific. There are players that focus only on segments like Prime, Sub-Prime etc , which are usually avoided by traditional banks and hence these banks ultimately go after these fintechs. 

In India, most incumbents have failed to understand the disruption that fintechs can cause and were already late when they realised what was happening. Currently, India is in a phase, where incumbents are trying to crack Innovation and fintechs are trying to crack distribution.

Consumer choices and preferences 

Both incumbents and fintechs are trying to build a consumer centric business. Most of the incumbents try to offer the customer what they already have, most of the start-ups provide customers with what they need and what they want. It is important to understand the differences between selling what you have vs what customer needs. Customers want to give feedback and interact with someone they think will respond to them and is not a black box. The more feedback the customers give, the better the product or service gets, which in turn changes the customers’ perception about the company as well. It is also important to have a large customer base, that allows for rapid scale. For e.g., due to large customer base of Flipkart, PhonePe was able to scale up fast. 

What leads to sector consolidation?

In US, the fintechs have evolved and are now becoming a race of consolidation and acquisition. Large banks in the US are investing in Fintech companies intending to acquire the latter. In India, big banks like SBI, KOTAK, AXIS and others like Neo, and Jupiter are all working on doing their own thing which should lead to consolidation but with an uncertain timeline. 

Most companies start with an objective to solve a particular problem and hence create a niche for themselves, trying to focus on what the large guy does not have, leading to either the large guy trying to take over or the company becoming the large guy. 

Will we end up like Wechat in China?

The trend in countries like the US argues against super apps like Wechat. Customers in the US want an app to do only one thing and are ok with having specialized apps for say banking, spend analysing, splitting etc. China had a different trajectory due to heavy government controls. In India also, unlike China, we are likely to have apps that solve specific problems only . 

Cost Structures in Neobanking 

Using data and mass customization, along with having multiple service tiers, can aid margin improvement for Neobanks. People are willing to pay, especially in countries like the US where they are different tiers of services and customers pay accordingly. In India also, customers are willing to pay, which can be ascertained by the popularity of subscription services like Amazon Prime, Zomato Pro, etc. However, the pace of growth in per capita has not kept in pace with the costs. With costs in USD and revenues in INR, the ability of the customer to pay becomes critical and hence companies need to be clear on the customers they intend to cater to. 

Regulatory Environment 

India’s central bank is phenomenally receptive when it comes to these new innovations. RBI has come up with various white papers on banking innovations showcasing their attitude and receptiveness about the same. They are ready to listen while also wanting to ensure that customers and economy are protected. Going ahead with initiatives that are best for the country which did not have any precedence also showcases the forward-looking nature of RBI. 

In terms of domiciling in tax havens, it is important to keep in mind that the regulatory environment has to be the same for banks and fintechs. Currency devaluation is a point that also needs to be considered, including future business plans like listing. 

Indian companies have an advantage due to their scale and can take the best of both worlds (emerging and developed). 

The session concluded with questions about how to juggle between the various roles of founder, investor and entrepreneur and the approach towards solving problems that aid in various roles.