Trimester: July to September 2021

Examination: End Term Examination

Programme code: 01 Trimester: IV
Class: FY/
Programme: MBA (Marketing) (SVU 2021)
Name of the Constituent College: Name of the department/Section/Center:
K. J. Somaiya Institute of Management

Name of the Course:

Course Code: 117P01S415
Marketing of Financial Services.

Maximum Marks: 25 Date: 9 October 2021

Notes:

1. Section 1 - Answer any 3 questions. Each question is of 5 marks

2. Section 2 – Compulsory
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SECTION 1 (15 Marks)

Answer any 3 questions. Each question is of 5 marks.

1. Describe the Digital payment landscape in India.

2. What is a Mutual Fund? Mention its types and the distribution channels used.

3. How are Fintech companies proving to be a threat for Banks?

4. What is the role of the Regulator in the Financial Services industry?

5. Describe the new trends in the loan market. Mention 3 new ways in which loans
(especially Consumer Durable loans) can be marketed.

SECTION 2 – Caselet (10 Marks)

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Does retail neobanking stand a chance in India?
Neobanks, still a nascent idea in the Indian context, are already attempting to capture a
share of the retail banking market by trying to target a slightly different segment and
solve a slightly different problem

Neobanks have been at the receiving end of a fair amount of venture capital attention in India
recently, with companies in this category raising nearly $116 million in 2019. Neobanks are
essentially digital-only banks that are aiming to change the way retail banking happens; they
have been at the forefront of fintech start-up activity in the EU and the US for the past few
years. Poor customer service, legacy tech and rising bank fees at traditional banks are some
key factors leading to their rise, in addition to their being more customer friendly and
millennial facing.

On the retail side, neobanks have started by providing customers a mobile bank account and a
linked debit card in the first instance, and then expanding to other financial services. While
eschewing fees, these banks make money by earning interest on deposits, charging
subscription fees and via interchange revenue earned on debit card transactions.

Neobanks are still quite a nascent idea in the Indian context, with many still waiting to launch
publicly. But there are already a few players attempting to capture a share of the retail
banking market by trying to target a slightly different segment and solve a slightly different
problem. Thanks in part to the Pradhan Mantri Jan Dhan Yojana, nearly 80 percent of Indians
now have a bank account. India’s primary financial problem is no longer one of an unbanked
population, but rather of an underbanked one. Creating products to cater to the very diverse
financial needs of the many different Indians does create distinct business opportunities for
neobanks.

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That said, there are real challenges to the retail neobanking model. Recent moves to cut UPI
interchange fees to zero, spells bad news for any fintech player in the country, and neobanks
are no different. Payments and interchange are not going to be a source of revenue for these
players.

After its experimentation with payments and small finance banks, the RBI is unlikely at this
point to grant new bank licenses for a few years, instead focusing on integrating the new
players into the banking sector and giving them time to stabilise. This means Indian neobanks
have to partner with existing banks to provide their services, which puts them in a weaker
negotiating position when it comes to revenue sharing. It also imposes limitations on the
range of things they can do (though the flipside of the argument is that it also ensures their
immediate focus is on finding the right niche to play in).

Partnerships with banks are one part of the equation; neobanks are also likely to partner with
providers of other financial products to offer access to investments, insurance, even loans.
Given the extremely fragmented nature of India's financial landscape—with Non-Banking
Finance Corporations (NBFCs), insurance companies, and capital market intermediaries
making up other components of the financial services sector—neobanks could potentially
provide customers value in being a single point of access to a variety of financial instruments.
Here an easy-to-use interface and great customer experience could make an offering truly
sticky and allow for genuine brand creation.

At the same time, incumbent banks have not been sitting still. Many of the big banking
players were slow to get on to the UPI bandwagon, much to their detriment. They have since
course corrected. Ironically, the State Bank of India, the country's largest public sector bank,
might be the original neobank mover in the country. It launched a fully digital offering,
Yono, in November 2017, and by the end of 2019, had ~17M registered users and ~6M
digital savings accounts (63 percent of all SBI savings accounts are now opened through
Yono). SBI's scale and size helps it here and it already offers 34+ financial products
including mutual funds, credit cards, and insurance on Yono. Neobanks will have to reconcile
both competing and collaborating with their bank partners, especially when it comes to
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becoming the primary bank account of their customer (which is what will give them the kind
of data they need to do the interesting things like smarter underwriting, etc).

As is always the case in India, there are also things happening on the sidelines. Financial
regulators last year started to work on an account aggregator framework with the aim of
building data rails that allow the sharing of financial information between regulated financial
institutions. Like UPI, this framework has the possibility of being a massive game changer.
Having learnt from their UPI experience, the big banks are already in the process of adopting
the framework. How the account aggregators shape up and how quickly they are adopted will
be incredibly important in determining if India's population can go from unbanked to
underbanked to being better served. But it also puts neobanks, which operate in a regulatory
grey zone, at a disadvantage.

Finally, while I am all for more financial inclusion, the prospect that neobanks, if they take
off, will make a complex and opaque industry becoming even more intermediated is very
real. India is still at a point where public trust in private financial institutions—or indeed
private corporates of any kind—can erode very quickly. The Yes Bank saga, for example, has
probably done a lot of damage on this front. People depend on being able to withdraw and
move the money in their bank accounts. Even a short outage—not unthinkable if you look at
neobank experiences globally—will not bode well.
That said, there is clearly a lot happening in consumer retail banking in India and some of the
neobanks have very seasoned founders and operators at the helm. As an observer it will be
interesting to see how this space evolves once these banks fully launch their products.

Basis the above Caselet, please answer the following

1. What is the future of Neobanks in India? Substantiate your response.

2. Design a winning STP strategy for neobanks.

All th Best.

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