As of January 2021, India's banking system, one of the most robust globally, comprises 12 public, 22 private, 46 foreign, 56 regional rural, 1485 urban cooperative, and 96,000 rural cooperative banks, in addition to cooperative credit institutions. Yet, one sector that is still severely underbanked is the SME sector, the backbone of millions of livelihoods in India. Though traditional banks have attempted to introduce multiple interventions to serve small and medium-sized enterprises, this community comprising our Kirana stores, chemists, small merchants, and traders remains largely underserved. This is one of the most important emerging communities, offering millions of jobs and delivering products and services that fulfill the needs of millions of people. The SME sector also fuels a million entrepreneurial dreams.
Closing the Banking Gap
One of the key challenges banks face when serving SMEs is that existing frameworks are not built for small ticket sizes. Our banking systems are traditionally designed to serve larger corporations that seek loans and financial products to the tune of millions. Hence, when engaging with SMEs, the accompanying transaction costs for traditional banks tend to be large and disproportionate. Not enough work has been done to customize rules and regulations to make financial products relevant for small and medium-sized businesses. This one-size-fits approach has led to several gaps in the consumer market, and neobanks are now fulfilling these needs, bringing flexibility, nuance, speed, and relevance to under-banked entities.
Banking at Your Fingertips
Neobanks, unlike traditional banks, are digital banks with no physical branches. They do not have licenses but partner with existing traditional banks to provide bank license services. Neobanks leverage technology to bring in flexibility, and offer unique, tailored, relevant products that span the length and breadth of loans, money transfers, and other financial products. From one's smartphone, consumers can open an account, transfer money, run their company's books, purchase products, and manage all transactions with the click of a button. Ease-of-use, speed, and a superior consumer experience are USPs of neobanks, which beat traditional banks in terms of accessible and delightful user interfaces.
Delivering High-Value to SMEs
Neobanks have simplified aspects such as digitization of collateral submissions, which typically delay access to services. Another gap in the market was shop insurance; even though 98% of shop owners are were willing to pay, the product was not available. Neobanks have now closed this gap with a relevant, easily accessible product. Let's have a quick look at how neobanks such as Chqbook are adding value to SMEs and the small entrepreneur community: Easy opening of a current account Bookkeeping and khata services to manage customers, suppliers, and orders, and collect payments. Access to business insurance, as well as health and life insurance
Access to credit has always been associated with consumers with fixed salaries and higher disposable incomes and larger corporations with deep pockets. Neobanks, which are now serving demographics outside the traditional consumer base, create access to credit for the underbanked entities. Such access opens up a new range of possibilities, right from raising creditworthiness, and in turn, credit scores. Neobank consumers can access credit cards, and as credit scores go up, consumers become eligible for capital, personal, and business loans. Other perks include no processing fees when taking loans.
Rewarding Positive Consumer Behaviour
The gamified interfaces of neobanks powered by AI and machine learning are built to bring delight to the consumer experience. The traditional rewards programs of banks get a facelift, with reward coins being introduced on daily transactions. These coins can be redeemed for offers by partner brands. Rewards can also be earned on other actions such as loan disposals and khata transactions.
As we can see, the top neobanks are building customer-centricity into their products and taking the age-old mantra "Customer is king" to the millions of people excluded by traditional banking systems. Inclusivity, hyper-digitization, and a superior consumer experience are the ingredients for success. For more insightful content on the future of neobanks in transforming the financial landscape of India, stay in touch with Onthewaymoney!