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A STUDY ON THE GROWTH AND OPERATIONAL MECHANISM OF NEO BANKS

IN INDIA

Article · June 2021

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Shodhsamhita : Journal of Fundamental & Comparative Research
Vol. VII, No. 2 : 2020-21
ISSN: 2277-7067
A STUDY ON THE GROWTH AND OPERATIONAL MECHANISM OF NEO BANKS IN
INDIA

Ashish C Pius, Ph. D. Research Scholar, Karpagam Academy of Higher Education, Coimabatore
E Mail: ashishpius@gmail.com
Dr.R.Velmurugan, Associate Professor in Commerce, Karpagam Academy of Higher Education,
Coimbatore E Mail: drvelsngm@gmail.com
ABSTRACT
Neo bank means the bank which operates only on the digital platform. This present study focus on
the growth of the Neo Banks and its operations in India. The Bengaluru-based start-up Finin is the
first full-fledged consumer Neo-bank in India. Finin in partnership with State Bank of Mauritius
(SBM) issuing instant personalized savings account with Visa Debit Card. The main feature of Neo
Bank is they don’t have any physical presence in their operations. Neo Banking having a bigger
opportunity in the current scenario as the customer are averting banking activities in branches.
Keywords: Neo Banking, e-banking, Traditional Banking, Application Programme Interface

INTRODUCTION
The world is living in the digital age, the financial industry is widely using digital services in its all
area. In financial institutions and banks their customers are depending on digital services to a great
extent. While employing digital services, profitability and easy operations are the main advantages
for banks while convenience, low fees, and anywhere transactions are the benefits for customers.
Generally, these digital services are called E-banking in the banking industry. Now in e-banking,
there is a radical shift called Neo Banks. Neo bank means a bank that has no physical existence and
operating completely in digital form. Neo banks generally function through a mobile application.

NEO BANKS IN INDIA

Finin is the first Neo Bank in India, founded in 2019 by Suman Gandham and Sudheer Maram. The
Bengaluru-based start-up Finin having a tie-up with the State Bank of Mauritius (SBM) for their
operations. They are offering instant savings account and debit card. Following are the list of Neo
Banks facilities offered in India.
Neo Bank Partner Bank Services
Razorpay x RBL Current Accounts, Payment Gateway, Cash Advance, working capital loan and
Payout etc.
NIYO IDBI,YES Savings Accounts, Wealth Management,Foreign Exchange.
BANK
Open ICICI,SBI,AXIS Current Accounts, Business Loan, Payment Gateway, Cash Advance, and
Payout etc.
Instant Pay ICICI,HDFC Savings Accounts, insurgence, Wealth Management, Foreign Exchange.
PAYZELLO Yes BAnk Virtual Debit Card, Money Transfer
YeLo ICICI Credit Payment, Banking
Walrus NA Savings Account, Credit and Investment
Finin SBM Savings Account ,Payment Gateway,investment
Aceware ICICI Micro ATM,Money Transfer,FasTag,Money Transfer

SIGNIFICANCE NEO BANKING

Neo-banks are not offering any new services to the customers, their services are almost the same
provided by the traditional banks. Transparency of Neo-banks are another significant advantage,
there is no hidden charges or commission in Neo-bank’s operation. Application Programming
Interface (API) is user-friendly and the customer can integrate the same with their business
transaction very easily. Because of their cost-effective operations, Neo banks are offering more
interest to their customers. Neo Banks is offering automated and real-time service to its customers.
Error-free transactions are another major advantage of Neo banks.

Journal of Kavikulaguru Kalidas Sanskrit University, Ramtek Page | 23

Shodhsamhita : Journal of Fundamental & Comparative Research
Vol. VII, No. 2 : 2020-21
ISSN: 2277-7067
STRUCTURE AND OPERATIONAL MECHANISM OF NEO-BANK IN INDIA
Reserve Bank of India has not permitted 100% digital bank in India. Therefore, Neo banks in India
don’t have a banking license of their own. To overcome this limitation they have a partnership with
banks and non-banking financial institutions. Neo banks are outsourced their banking responsibilities
to licensed banks.
Neo banks are operating through Application Programming Interface (API). API is included different
services offered by the Neo banks and integrated them into their partner's software also.
\
NEO BANK STRUCTURE IS DIVIDED INTO THREE MAJOR PARTS
1. Core Infrastructure: Mainly payment gateway, connected with their partner banks.
2. B2B/B2C Modules: customers are using this module for their transactions. Various services
provided by the Neo bank included in these modules.
3. Customers: B2B customers using Neo Bank services are included in this part. Example: Travel
Industry, E-Commerce Sellers, Ngo’s, etc.
REGULATORY FRAMEWORK OF NEO BANKS
In India, RBI is not providing licenses to ‘virtual’ or ‘branchless’ banks. RBI is providing license to
payment bank from 2014 onwards, but RBI is not treating payment bank as a virtual bank. So,
currently Neo-banks are outsourcing some of their banking activities with the licensed bank. Hence,
Licensed banks are starting Neo banks for overcoming this limitation. If RBI is providing License for
Neo Bank, they can work as a standalone entity and will be more cost-effective.
ROAD AHEAD
Cost-effective multiple banking facilities, easily accessible platforms, convenient operations are the
fuel for the growth of Neo Banks in India.

LITERATURE REVIEW
Yashraj Dokania (2020) explains the concept of Neo Banks in India. The operational mechanism of
Neo bank is stated in his article.
Amal Dethe (2020) in his article stated that the growth of the Neo Bank in India will be more if
Regulator is changing its stand. The regulator RBI is not providing a license to the standalone
operation of Neo-bank. It will reduce the growth of Neo Banks.
Kapil Rana (2021) in his article stated that the profit of the Neo Banks is slim due to heavy
competition in the new sector. The new entrants are facing stiff competition from the banking market
leaders SBI and ICICI.
OBJECTIVE OF THE STUDY
 To study the growth and operational mechanism of Neo Bank.

RESEARCH METHODOLOGY
Secondary data required for the study collected from Websites.

FINDINGS
The following table summarizes the result of the study.
Table 1 Business Growth of NEO Banks (in $ Billion)
Table 1 narrates the business growth of NEO Banks between 2019 and 2020 in India as well as
Globally.
Year India Global Business
2019 0.09 19.3
2020 0.12 22.4
In India, volume of NEO Bank business stood at $0.09 billion during 2019 rise up to $0.12
billion during 2020 registering a growth of 33.33 per cent. Whereas, global business of NEO bank
business which stood at $19.3 billion raise to $22.4 billion during 2020 registering annual growth of

Journal of Kavikulaguru Kalidas Sanskrit University, Ramtek Page | 24

 Shodhsamhita : Journal of Fundamental & Comparative Research
Vol. VII, No. 2 : 2020-21
ISSN: 2277-7067
16.06 per cent From the above table, it is noticed that growth of NEO bank business in India
registered a higher growth rate than global growth rate.
Table 2 Business of Traditional banks in India and Globally ($ Billion)
The following table describes the volume of business of traditional banks during the period
2019 and 2020.
Year India Global Business
2019 2163 7895
2020 1986 7321
In India, the volume of traditional bank business stood at 2163 billion during 2019 reduced to
1986 during 1986 registering a negative growth of -8.18 per cent. The same trend is noticed in global
banking business too.

SUGGESTIONS
The RBI should provide the license to Neo Bank for their operations. It will attract more customers
to Neo Bank as it’s a cost-effective and convenient platform for all categories of customers. Licensed
Neo bank can compete with traditional banks and it will compel the traditional banks to reduce their
fees and they will try to provide more service to their customers. Currently, Neo Bank's business
concentration is on corporate customers. They should reach their services to retail customers also.
Still, a major portion of customers is not aware of the various services of Neo banks. The lack of
awareness level among the customers about the Neo Bank should reduce by aggressive promotional
strategies.

CONCLUSION
Neo bank will be the future of the banking industry. Many traditional banks are providing Neo
banking services proven the scope of Neo-bank in the future. Increased use of the Internet and
smartphones will add to the market potential of Neo Banks in India. The low-cost value-added
services and user-friendly API offered by the Neo Bank will definitely attract more customers to Neo
Bank.

REFERENCES
https://bfsi.economictimes.indiatimes.com/news/fintech/neo-banks-in-india-are-rising-but-will-take-
some-time-to-disrupt/78251059#:~:text=Fintech-
,Neo%20Banks%20in%20India%20are%20rising%20but%20will%20take%20some,raise%20%243
94%20bn%20by%202026.&text=But%2C%20according%20to%20BoFA%20securities,years%20to
%20disrupt%20the%20market. Retrieved on May 26
https://www.pwc.in/consulting/financial-services/fintech/fintech-insights/neobanks-and-the-next-
banking-revolution.html Retrieved on May 20
https://www.ijlmh.com/neo-bank-revolution-in-indian-banking-sector-a-critical-analysis/ Retrieved
on May 27
https://smefutures.com/neo-banks-the-next-revolution-in-indian-banking-sector/ Retrieved on May
28
https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review#
Retrieved on May 28

Journal of Kavikulaguru Kalidas Sanskrit University, Ramtek Page | 25

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