The word ‘fintech’ is turning into a significant unifier. The way you manage your money changed dramatically over the past ten years and will change more. A new report released last week during a Global Fintech Fest gives a peek into the way you do banking would change.
Neo banking will be the way financial services will move forward, most experts highlighted. Neobanks are FinTechs that target individuals for financial services who are factory workers, freelancers, teenagers and students. Segments that are not reached out to by the traditional banking systems. Neo banks do not get an independent banking licence as banks. However, they are allowed to source business for existing banks.
It is interesting to note that the event had participants like governments and regulators like the Reserve Bank of India, Securities and Exchange Board of India and Insurance Regulatory Authority of India. The Internet and Mobile Association of India or IAMAI, and the National Payments Corporation of India were the organisers.
Excitement was evident as most experts attending the event agreed that Neo Banking would turn out to be the Next Evolution Arc in Financial Services. Conversations among pundits in the technology, financial services, telecom services space are all converging.
Why this matters
Financial inclusion needs a lot of things to happen together. India’s most significant advantage is that the government has created a solid base with India Stack, a technology-led ecosystem based on Aadhaar. Financial services like bank accounts, pension and provident fund accounts, mutual fund accounts and stock market trading accounts can all ride on the infrastructure.
These services have to reach remote parts of the country through the internet and mobile phone networks. G P Garg, an executive director at Sebi, said that the e-KYC or electronic Know Your Customer system has been a game-changer as it enables ease of doing business and investing.
Neo banks reach out to individuals who are otherwise not targeted by traditional banking or financial services institutions. If you are among the 25 crore people who belong to the ‘blue collar’ category like factory workers, neo banks would reach out to you to open savings accounts, offer ‘sachet’ or microloans, insurance and allow you to pay to make payments.
The report estimates that the number of ‘gig economy workers or freelancers is 1.5 crore in India. When you are not working with a single organisation, you do not have a fixed salary every month. You are usually a contract-based worker with fixed benefits. There are no long-term benefits like provident fund and pension fund. You also do not benefit from a group insurance policy like those in the government or large private sector. You need to take care of your financial needs anyway. You need insurance, and you need banks to offer you loans at attractive terms. If you are a gig worker, banks do not give you offers that appeal to you. You pay the higher insurance premium or interest rates. If you do not have a loan repayment record, banks cannot give you a credit score or assess your potential to repay the loan.
Traditional banks do not have the bandwidth to provide loans to you if they see a higher risk profile. Neo banks can start small as they have a clean slate. These banks cannot presently give out loans on their own as they do not have the licence to lend. But they can offer payment services, cashback and other means to lure you into the formal financial system.
What you should be looking for
Neo banks are for you if you are looking to manage your finances better. It is all the more important to use them if you have a lumpy or irregular income. If you work independently as a professional, neo banks offer an excellent opportunity to establish your financial credentials. Your prudent borrowing or investing activity will give confidence to big banks to provide you with better terms. With many people working from home and more could start work from home, neo banks could just be the proper gateway for you to set a path of financial well-being.
Starting small
Traditional banks do not have the bandwidth to provide loans to you if they see a higher risk profile. Neo banks can start small as they have a clean slate.
Neo Banks to establish your financial credentials
Neo banks are for you if you are looking to manage your finances better. It is all the more important to use them if you have a lumpy or irregular income. If you work independently as a professional, neo banks offer an excellent opportunity to establish your financial credentials. Your prudent borrowing/investing will give confidence to big banks to provide you with better terms. They could just be the gateway for you to set a path of financial well-being.
(The author is editor-in-chief at www.moneyminute.in)