‘The Tata Nano 🚗’ moment for India’s Fintech Neobanks?

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Context: Tata Nano was a 🚗, launched at a USD 1400 price tag in 2009, by India’s most respected businessman and household icon, The Tata’s. Over a million were euphorically ‘booked’ in initial years but the interest soon petered out. In 2019, in a country of 1.3 Billion, only 1 Tata Nano 🚗 was purchased. “The Nano, at best, made people move “sideways” when they wanted to move “upward.”

Are the non-full-stack Indian Neobanks, the Tata Nano 🚗 ? Read to deep dive:

When I left my employment with Citibank, I switched from the employee salary account to India’s central bank RBI mandated Citibank Basic Savings Bank Deposit Account, a no-minimum balance, full service, free account, while the debits and credits are capped, I have access to internet banking and to a secure mobile app, there is 24 x 7 access to Citi’s customer care executives and the usual free ATM and branch access. Basically everything, free. Its a cost paid by every bank to do lucrative business in India, in Citi India’s case, a net profit of INR 41 Billion in FY 19.

Banking is a quasi-fundamental right in India.

Courtesy RBI, any Indian, can walk into any bank branch of their choice, and walk out with a basic savings bank account. (Any Indian-Any Bank-Any Branch-Free Zero balance bank basic savings account-full service, with limits on debit-credit).

The result, India has 250 million households and over 829 million debit cards.

Besides the RBI mandated basic savings bank account; the scale, efficiency, competition and outreach of Indian banking has made banking universal, and organically, democratized via market forces of demand and supply.

When an Indian turns 18 and walks onto their university campus, they are greeted by friendly, formally dressed bank relationship managers, who ask them to quickly sign, both here-and-there, and hand them an instant kit containing a ready to use a debit card. Similarly, when they join work, they are offered another debit card and easily cajoled to open a no-annual free, one of the silver-gold-platinum plastic credit cards. Each time, the experience is a friendly five minutes or less.

Indian Banking has been in a state of a multi-decadal digital transformation, ever since RBI mandated core banking system as a pre condition to the 10 new private banks licensed in 1993. Global Trust, ICICI, HDFC, UTI, Centurion, Bank of Punjab, IDBI, Times, DCB, Centurion were all born digital, the weaklings merged or were taken over. Home grown core banking software industry grew in parralel, think of Infosys Finacle.

India today offers world-class consumer banking, a harmonious blend of digital banking with the required human and branch support for the clearly Do-It-For-Me, preferring Indians.

Banking has been truly democratized.

While RBI does permit the ‘but-cannot-lend’ payments banks, they have no provision for digital-only banks, permitted in places like Hongkong and UK.

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Perhaps RBI realizes the futility of such a differentiated license, given the low traction of payment banks and most importantly, given India has already leapfrogged from analog banking to full service, digitalized universal banks.

Indian ‘NeoBank’ Fintech startups are partnering with the smaller and nimbler banks (RBL Bank, Yes Bank, etc) who offer off-the-shelf fintech partnerships & the requisite suite of APIs. The revenue is shared, the bank owns the balance sheet and legally, also the customer. The fintech promises to comply with the passed-on from the bank to them, RBI’s myriad regulations, it also owns both the customer ‘relationship and experience’. The well-intentioned aim is to democratize banking, yet again.

The result is a brilliantly designed, attractive, accessorized, self-serve Neo Banking application, albeit with ‘limited banking functionality’ when contrasted with a regular bank. The accessory features enable the cross-sell and up-sell of other financial products and services.

Venture Capital firms have found this attractive and are invested.

India offers a low cost of acquisition of new mobile App installations, consumers traction is fast and easy, the retention and engagement is the ‘key’. Globally 65% of Neo Bank accounts are unfunded. Make your guess, the number for India Neo Banks.

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Perhaps celebrating the number of accounts or the aggregate throughput (the GMV equivalent) opened is the wrong measure of success.

Globally, it’s the full-stack model (where the NeoBanks hold a digital bank license) vs the partnership model, where winners have emerged, Starling, Monzo, N26, and Revolut!

Equating and expecting India to replicate the traction of full-stack Neo Banks in America, UK, and Europe, where traditionally banking technology and service levels lag India by decades, would be wishful thinking.

Mr. Ratan Tata is an icon, evokes trust, faith, promise, integrity. In 2019, only one Nano car was sold, one. In 2009, at USD 1400, the Tata Nano car was positioned as the world’s cheapest, value-for-money car, aiming to democratize personal mobility, people chose full-service cars, beginning at double to triple the price tag of Nano.

What does this say?

Consumers have access to a full-service bank account with a mobile app, internet banking, relationship manager, branch, and telephone support.

Why would they need a Tata Nanoesque NeoBank, compromised functionalities, and experience given the non-full stack, a user interface stiched via partner bank APIs and bound by bank’s rigid partnership contract?

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I hope I am proven wrong. I am cheering for our FinTech neo-banks.

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Vibhu Arya
Vibhu has previously worked in India, Middle East, South East Asia, and China across banking, e-commerce, fintech, varied payment types, remittances, and blockchain.
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