Tag: fintech

Explainer: Neo-banks Vs traditional banking

Banking & Finance

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What are Neo-banks?

Neo-banks are online-only financial technology (fintech) companies that operate solely digitally or via mobile apps. Simply put, neo-banks are digital banks without any physical branches.

How are they different from the traditional banks?

Neo-banks are disrupting the traditional banking system by leveraging technology and artificial intelligence (AI) to offer a range of personalised services to customers. On the other hand, traditional banks follow an omni-channel approach i.e. having both physical (through branches and ATMs) and digital banking presence to offer a multitude of products and services.

Right from customer acquisition to traditional banking services such as remittances, money transfers, utility payments and personal finance, neo-banks offer a wide range of offerings to customers across retail and small-to-medium enterprise (SME) categories. Typically, neo-banks apply a design thinking approach to a particular banking area and tailor their products and services in a manner that makes banking simpler and convenient to the end consumers.

How are they evolving?

The term ‘Neo-bank’ started gaining prominence globally in 2017 as they emerged as a new challenger to the traditional banks in terms of customer engagement, connectivity and reach, and most importantly, the user experience. That is why neobanks are also called ‘challenger banks’. The market potential for neo-banks is driven by the rising penetration of the internet and smartphones across the globe.

Also read: Cryptos, far from the regulators’ glare

According to a report by KBV Research, the global neo-banking market size is expected to reach $333.4 billion by 2026, rising at a compounded annual growth rate (CAGR) of 47.1 per cent. Although neo-banks are relatively new concept in India, the concept has been gaining traction over the last few years. There are around a dozen neo-banks in India including Razorpay X, EpiFi, Open, NiYo, Jupiter among others. In recent times, some of these firms raised funding from marquee global investors, who are betting on India’s hugely underbanked market potential.

Can they replace traditional banks?

Not entirely. Neo-banks offer only a small range of products and services as compared to a whole gamut of services that traditional banks offer. Besides, since neo-banks are highly digital focused, they may not be able to cater to the banking needs of non-tech savvy consumers or people from the rural parts of the country, who believe in face-to-face interaction with their financial custodians. As of 2020, India had a smartphone penetration rate of just about 54 per cent.

What are the challenges that they face?

Numerous. First and foremost is building trust. Unlike traditional banks, neo-banks don’t have a physical presence, so customers cannot literally ‘bank upon’ them in case of any issues/challenges. Secondly, neo-banks are yet to be recognised by the Reserve Bank of India (RBI).

Also watch: Five ways digital lending apps can become safer for you

So, they have to engage with regulated banks and financial institutions to offer financial products and services. Due to the absence of enabling regulations, neo-banks cannot accept deposits or offer lending products on their own books. That is why some fintechs have a non-banking financial company (NBFC) as their parent to engage in lending activities while most others partner with banks and financial institutions.

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CRED to acquire Happay for $180 million

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Fintech unicorn CRED plans to acquire Happay, a corporate expense management company.

The acquisition is expected to be a cash-and-stock deal, potentially valuing Happay at about $180 million. While Happay will operate as a separate entity, the team will work closely with CRED to expand the product offering and drive scale. Happay’s 230-member team will get all the benefits extended to CRED team members, including the ESOP programme.

Happay is a business expense, payments and travel management platform serving over 6,000 businesses. It manages work-related expenses for over one million users globally, with about $1 billion in annual spends. Its customers include TATA group, PwC, Maruti, OYO, Byju’s and Udaan, among others.

CRED targets ₹100-crore ESOP buyback this year

Kunal Shah, founder, CRED, said, “Turning the pain of credit card management into a delight has enabled CRED to grow rapidly over the past three years. With professional expenses forming a significant portion of credit card spends, bringing professional expense management into the CRED ecosystem is a natural extension of our proposition. Happay’s product strength, customer experience, and vision align with our intent at CRED to reward responsible financial behaviour and we’re excited to partner them in their journey towards leading the category.”

Buoyancy in retail credit growth expected to last

Anshul Rai, co-founder and CEO, Happay, said, “We’ve invested in building a category-defining product at Happay with thousands of customers who love the experience. The next phase of our growth will come from building scale, brand, and distribution.”

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Three things banks need to keep in mind before leading a digital transformation, BFSI News, ET BFSI

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The fintech revolution is here and banks need to build innovative digital-first products to survive it, Sudipta Kumar Ghosh who is a thought leader in the fintech space tells us why

In financial services, fintechs are promoting a vision of a world without banks. Blockchains and cryptocurrencies have taken over paper money or credit cards. Portfolio management is conducted in an AI setting without managers. Mobile and online payments are turning into debit and credit cards. In short, fintechs are facilitating a fast, seamless, immersive, cross-channel digital experience that customers have always wanted. It is satisfying their needs and bringing to them so much more that they can anticipate. For millennials, this is incredibly good news. As a dominant demographic, millennials’ expectations of brands are increasingly changing and they have fundamentally different banking and investing habits, making it clear that banks must adapt.

To understand how traditional banks can compete with fintechs, we caught up with Sudipta Kumar Ghosh. He has over a decade of experience in the fintech space and is one of the few leaders to lead technology transformation for large banks. He holds an MBA from Kellogg School of Management at Northwestern University.

  • Tell us why the adaptation to fintech is the need of the hour for banks?
    The traditional banking system will not survive if it doesn’t adapt to the fintech revolution quickly. After the Covid-19 pandemic set in, it forced the entire industry to provide consumers digital options where they did not exist previously. The consumer’s daily life was suddenly digitized and their expectations for digital experiences hit the ceiling. It also became clear that simply going digital capabilities was not enough as consumers also required the technologies they were using to be as swift and easy as the leading big tech and fintech companies. This makes it very important for banks to build innovative products that can provide a superior customer experience. Unlike before, having digital functionality is not an option anymore – it’s a must.
  • Do you think banks are working on any transformational strategy?
    Yes, of course. Banks are aware of this need to rejig themselves and they are already working on actionable strategies. In a recent study conducted by Microsoft on the financial sector, 73% of the survey respondents said at least 50% of their customers’ financial activities switched from in-person services to digital services in 2020. Most of the respondents to this survey also said their organizations not only used several CX technologies during the COVID-19 pandemic but also plan to continue using them. Smartphone apps and mobile responsive websites (81%), customer onboarding and feedback automation (62%), and AI-powered predictive analytics (51%) are some of these technologies.
  • So, from your experience leading digital transformation for banks, what are the things banks should think about when building digital-first products?
    Three things should be kept in mind here.

The first is making banking personal and seamless. Customers will use various channels such as mobile, web, touch-free to interact with the bank. That means there has to be fluid, streamlined, integrated, seamless, and personalized consistency for the customer at all touchpoints. Also, cross-channel consistency is critical for meeting (or surpassing) customer expectations and cultivating loyalty. Secondly, banks need to make use of the cutting edge technologies available. They should use cloud delivery platforms to ensure that websites and apps are always available and that every customer will enjoy optimal performance, regardless of location or device type. Using the latest tools and techniques to gather data from cross-channel and multi-device interactions for analysis, recognizing recent activity and delivering personalized services, and also offering promotions in every session is the need of the hour.

The third is to mitigate cybersecurity threats. Today’s online threats continue to grow in size, frequency, and sophistication, putting banks at tremendous risk of reputational damage, diminished IT productivity, and revenue loss. Think about encrypting and tokenizing sensitive data, proper governance model for data on the cloud.



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Zenwork raises ₹1,200 crore from Spectrum Equity

Banking & Finance

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Zenwork, a digital tax compliance and regulatory reporting platform, has raised ₹1,200 crore from Spectrum Equity, a US-based growth equity fund focused on internet-enabled software and information services companies.

“We will use the proceeds to accelerate product innovation, expand to newer markets and increase the headcount,” Sanjeev Singh, Co-Founder and Chief Executive Officer of Zenwork, has said.

The company, which has about 80 employees now, would more than double the workforce to 200 people by the end of 2022.

Announcing the raising of funds at a press conference here on Tuesday, he said the company would develop products to meet the growing business demand for modern, automated technology solutions to address regulatory compliance.

“We raised ₹1,200 crore Spectrum Equity, which has experience in scaling regulatory tech and fintech software and data businesses. Their support will help us navigate this next growth chapter,” he said.

“This strategic alliance gives an opportunity for us to invest heavily in our Tax1099 and ‘Compliancely’ platforms as we look to be the digital tax compliance partner of choice to all businesses,” he said.

The firm presently generates the bulk of its business from the US.

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OkCredit report, BFSI News, ET BFSI

Personal Finance

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– Anushka Sengupta

More than 30 lakh customers came forward to settle their credit this festive season. Credit given per active merchant went up by 23%, a report by OkCredit revealed.

The oldest form of ‘Buy Now Pay Later‘ has been a part of the small and medium sized businesses space, where customers who buy from local stores do not pay upfront, but pay later. These merchants usually keep an account for their customers, and the customers repay the bills later.

Such merchants added 1 million customers during the period, repayments were up 12% than average, and merchants booked 15% growth during the two-week festive period, it said.

Digital payments have played a huge role in helping mom and pop stores recover credit. As per the report, the number of credit lines settled digitally have gone up by 100% since last year, showing adoption of online payments in digital book keeping. There has been a 70% increase in retail small and medium sized businesses adopting a digital solution to manage their books.

Merchants in eateries, school supplies, travel, jewellery and kirana shops saw the highest growth. On an overall basis, transactions have grown by 20% compared with the festive season a year ago.

Each merchant category on OkCredit has seen an increase in customers. The most significant growth has been witnessed by retailers in the following categories :-
1) School supplies and stationary – 39%
2) Travel agencies – 26%
3) Eateries – 25%
4) Gold & Jewellery – 17%
5) Electronics – 12%

BNPL sees surge in repayments this Diwali season : OkCredit report

The increased repayments and growth in retail small and medium sized businesses (SMBs) also point to a healthy recovery in the economy, especially in tier-2 and tier-3 towns, as these towns account for a significant chunk of OkCredit’s merchant base, the report said.

Gaurav Kunwar, Cofounder & CPO at OkCredit says, “We wanted to measure category-wise impact of the Diwali shopping season among retail SMBs.
It was heartening to see credit recovery being high, in places such as Kerala, Tamil Nadu, Manipur, it was 30% higher than rest of the country.”

BNPL sees surge in repayments this Diwali season : OkCredit report

Merchants in states such as Kerala and Karnataka have seen 8% growth in business. The North-Eastern states have seen the highest growth, topped by Manipur where transactions per merchant increased by 22%.



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Tech and digital will be major enablers for our business: Poonawalla Fincorp

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Poonawalla Fincorp believes tech and digital will be key enablers for its business and it is looking at providing end-to-end digital journey to its customers. In an interview with BusinessLine, Vijay Deshwal, Group Chief Executive Officer, Poonawalla Fincorp, spoke about the company’s strategy since the deal with Magma and how it plans to diversify products and rationalise branches. Excerpts:

How has the business been operating since the Magma deal?

The last four to five months have been a phase of consolidation and transformation, where we realigned our business mix towards highly scalable products, targeting formal credit-tested borrowers with increasing play on salaried and professional individuals. We have a very highly ambitious plan of growing with a focus on generating operating profits and keeping credit costs well within predefined limits. To achieve this, we have identified five core operating levers — brand and equity capital coupled with our cost of funds. We have already achieved a significant repricing of our existing debt and raising fresh debt at very fine rates. The third lever is a very strong senior leadership team; the fourth lever is our distribution and collection infrastructure and the fifth lever will be our digital strategy.

What will be your digital strategy?

We will look at tech and digital as major enablers for doing business. For each one of the businesses, our ambition will be that we have an end-to-end digital journey for our customers. We will use analytics as a very potent tool for sourcing, credit underwriting and risk monitoring. We will focus on the credit costs, right from the time of onboarding of customers and maintain them within the predefined parameters.

What are the products that you are diversifying into?

We have rolled out personal loans and loans to professional business. We have started SME loans against property last month.

The small ticket LAP will be rolled out in the next quarter. Co lending and fintech partnerships are on. Pre-owned car finance is also there and we have a very good affordable home loans franchise. These will be our focus segments. We are also at the advanced stages of launching medical equipment loan franchise, small ticket loan against property, and a few co-lending and fintech partnerships.

Apart from the pre-owned car finance partnership with CARS24, are you looking at such partnerships for other product lines?

We have been into pre-owned car finance.

However, tech and digital are at the front of all our value propositions and which not only offers frictionless delivery of financial services but also reduces the cost of acquisition and opex. Fintechs are playing a complementary role in the financial supply chains. In addition to our physical distribution infrastructure, which we already have in place for pre-owned car finance and other products, we are actively looking at harnessing such partnership ecosystems.

What about branch expansion?

We inherited 290 branches. We are looking at branch rationalisation rather than branch increase or branch decrease.

Some branches will be shut where the product focus is not there or those which have not been profitable. We are looking at strengthening our presence in some markets like Tamil Nadu, Maharashtra and Gujarat where our branch penetration was not so adequate.

The overall business outlook seems to be very encouraging if we look at all the high frequency indicators like GST collections, the commercial vehicle sales and the push for online payments. We believe that we are up for a good business cycle in the coming years. The recent few months have also provided a huge amount of market opportunity across the products that we have identified and our business also has been responding quite well to these market opportunities.

Is stress on your books a concern?

Not at all. We took a few prudent measures at the beginning of this financial year where we revised our write-off policies more to actually align with the real credit costs that the product lines bring and also took prudent management provisions to take care of any unforeseen events. We don’t see any sort of negative surprises in the near to long term.

Are you looking at further capital raise?

We received very large capital infusion by way of this (Magma) transaction. We are not looking at a capital raise at least for the next three to four years. We are sufficiently capitalised to grow our businesses in the near term.

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Invest in ideas, start-ups to build nation’s wealth-sheet: PM to banks

Banking & Finance

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 Prime Minister Narendra Modi today asked public and private sector banks to support wealth and job creators especially by  investing in ideas thrown up by the start-up ecosystem.

Banks should work not just towards building up their balance-sheets but also the “wealth sheet of the country”, said the PM.

Partnership model

Addressing chief executives of the country’s  public and private sector banks, at a conference on ‘Creating synergies for seamless credit flow and economic growth’, Modi asked them to adopt a partnership model with businesses rather than looking at it as a relationship between “loan approver and a loan applicant”.

He pointed out that banks were flush with liquidity and there should be all round effort to help corporates and MSMEs scale up.

“Today, there is a need to unlock the productive potential of Indian citizens. The more you invest in citizens and their ideas, the more employment can be achieved. You have to align your efforts with the government’s goals,” Modi said.

Asserting that Indians are quick to adapt to new technologies, Modi urged bankers not to delay initiatives when it came to fintech. He also set a target for banks: By August 15, 2022 (75 years of Independence) every bank branch in the country  must have at least 100 customers who are completely digital in their functioning.

The Prime Minister said that reforms initiated in the banking sector in the last 6-7 years had helped the sector reach a strong position today.

Modi said that ways were found to address the problems and challenges from before 2014 one by one. “We addressed the problem of NPAs, recapitalised banks and increased their strength. We brought reforms like IBC, updated many laws and empowered debt recovery tribunal. A dedicated stressed asset management vertical was also formed during the Covid period,” he said.

Steps taken in the recent years have created a strong capital base for the banks. They  have sufficient liquidity and no backlog for provisioning of NPAs, which are  at their lowest in the last five years. This has led to the upgrading of the outlook for Indian banks by international agencies, he added.

Bad debt recovered

The Prime Minister said that over ₹5-lakh crore of bad debt had been recovered by the banking system and that the new National Asset Reconstruction Company Ltd  is expected to address ₹2-lakh-crore  stressed assets.

On the proposed web-based project funding tracker to bring together ministries and banks, Modi suggested adding the Gatishakti Portal as an interface may be better.

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Time to clear the air on cryptos

Banking & Finance

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While the government has had mixed and probably even alternating stance on cryptocurrencies, the currency regulator RBI had been silent for a long time and, of late, has shared its concerns on cryptos with the government.

The securities regulator SEBI could be the ideal regulatory candidate if cryptos were to be treated as an asset class.

The Indian investor community has been euphoric about the instrument, despite noise that crypto investing could become illegal or taxed harshly. All this, when the issue of crypto was purportedly settled last year with the Supreme Court of India lifting the RBI’s crypto ban of 2018.

A to G of crypto

Arbitrary actions and reactions will continue as the financial industry has showcased so far. A few months ago, some banks stalled operations or pass-through of the crypto exchanges; purportedly, as the market guesses, to avoid irritating their regulator. The day there is clarity on how crypto would be seen under Indian law, and if it is for holding crypto as an asset, every BFSI and fintech would jump onto the bandwagon.

The banking sector’s lack of understanding of cryptos continues. It is more about understanding the liquidity of various cryptos available. As long as the rules bring clarity on what other information other than KYC would be needed, the sector can chug ahead.

Crypto consumers will stay invested probably until they get hurt by crypto falsehood or misleading investments. It is rightfully the RBI’s endeavour to have consumer protection in mind. But as we regulate the sector, we also have to move to a market-led economy, where, as long as the consumers get into an investment position without being mis-sold or forced to invest, the industry should not be ostracised.

It is also worthwhile to mention that the RBI is planning to launch its own CBDC (central bank digital currency). Debt leverage worry of the lending community will continue until they are allowed by the regulator. End-usage fears that cryptos could potentially be used for terror financing, etc., seem far-fetched, considering the granularity of its traceability. Interestingly, usage of gold or realty seems far in the wrong end of illegal funding.

Functionality of its core, which is blockchain, cannot be brushed away. It has tremendous usage and potential across public finance, banking and financial services; this could help build a secure financing backbone for the entire country as we seek to expand the inclusive-nature of our financial offerings.

The government’s stand cannot vacillate on policy matters without taking wide range of inputs, not just from a commercial angle but also from a deeper technological understanding if it can bring potential good. Let’s remember that our grandparents could not have imagined mobile-payments or transactions without seeing/touching the monies or writing a cheque. So let us not discount the emerging digital monies, for the short term notion of “not wanting it happen in my watch.”

Any asset class’ trade-worthiness and consequent liquidity is determined by a crucial factor: “trust”. Regulations can offer confidence around legality of the asset class and its usage, but cannot determine public acceptance or asset pricing. Regulations can surely offer consumer confidence and consumer protection if they are light-touch and use latest digital supervisory capabilities.

It is essential that the government does not give into knee-jerk reactions of the stakeholders, and takes a pragmatic call. It has displayed tremendous initiative by adopting digital across various facets including financial markets, e-governance, public outreach, etc. It should engage in depth with various stakeholders to understand how digital finance can be used for larger public good, and not give in to short-term worries and lack of capacity.

It’s a good sign that the Parliamentary Standing Committee on Finance has invited crypto industry players to hear their views on the opportunities and challenges. If our regulators take a leaf from this and invite multi-stakeholder discussions and seek inputs about the draft Bill, it would be a comforting exercise.

In the spirit of democratic transparency, it would be welcome if the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ is put in public domain, and comments sought.

The writer is corporate advisor and markets commentator

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Inside Freecharge’s neo banking gameplan

Banking & Finance

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In its mission to become a personalised comprehensive digital bank or neobank, Axis Bank-owned fintech Freecharge has started phased closed user group (CUG) testing of the product with over 18,000 organic users sign-ups. The neobank is scheduled to launch in the fourth quarter of the current fiscal and will be having several personalised features to keep the user engaged including financial goal management, financial scores to analyse financial stability and a spend analyser to help track expenses.

“Freecharge will become a comprehensive financial services platform. In the first phase, we launched our buy now pay later (BNPL) product in the first quarter, which has been growing 40X QoQ. In the second phase, in October, we started the lending product. And now, the focus will be the launch of the neobank in the next few months,” Siddharth Mehta, CEO, Freecharge, told BusinessLine in an exclusive interview.

The neobank will show up as a separate section within the Freecharge app.

Comprehensive suite

Targeted at the 22-32 age group of salaried professionals, the neobank will be providing a host of services including fixed deposits, lending, BNPL, digital credit cards, and investing options like mutual funds and digital gold in one app.

The app’s in-house built proprietary software will enable value-added features such as goal management, financial score to gauge how financially stable and healthy you are what you need do more, and spend analyser.

Also see: Axis Bank inks pact with Army Insurance Group for retail mortgage loans

What’s interesting is these ultimately will become a part of Axis Bank’s universe, helping the bank strengthen its portfolio of products and even cross-sell them across the two platforms. Entering slightly late into the market, this, Mehta said, will be a key USP (unique selling proposition) among existing neobanks such as Niyo, Fi, Open, Jupiter, Avail Finance and many more.

“Being a subsidiary of a trusted bank like Axis Bank is the biggest advantage to Freecharge as compared to any other neobanks. We are able to provide comprehensive suite not only of products but also services. If I am onboarding the customers through my neobank, the parent bank has all the capabilities to profile the customers, and build products that we can cross-sell across the two entities,” he said.

‘Evolving banks’

Speaking of having agility as a part of a legacy bank over a new-age fintech, he added, “Banks are evolving very fast on digital. I would like to call them evolving banks instead of ‘legacy’. In the next two years you will see them work in a very different way. For instance, Axis has built a new cloud-first platform called Jarvis for digital lending. It’s agile and working real-time, even the technology updates. The ability of launching an end-to-end digital lending platform and to be able to optimise it regularly clearly shows that the banks are agile and moving fast.”

Lending proposition

Freecharge, along with Axis Bank, is currently working on creating a merchant lending product with daily EMI and a daily investment product. Overall, at Freecharge’s level, the focus going forward will be on building a strong lending proposition.

Also see: ‘Bank-backed brokerages keep losing market share to discount brokers’

Freecharge will launch its personal B2B loan product in another two months, which will have a tenure of 12 months. Borrowers will be offered loans of ₹3,000 to 100,000 depending on their profiles, at an interest rate of 24-30 per cent. This product will be focussed on merchants having one or two stores and not the larger SMB ecosystem, Mehta said. While BNPL comes at zero interest rates, there will also be another consumer loan product of ticket size of ₹500-10,000 at 15 to 20 per cent interest.

“We want to add at least a million accounts three years from launch for the neobank,” Mehta added.

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Paytm Money launches AI-powered ‘Voice Trading’

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Homegrown fintech platform Paytm on Monday announced that its wholly-owned subsidiary Paytm Money has launched ‘Voice Trading’, powered by artificial intelligence, allowing users to place a trade or get information about stocks via single voice command.

“This service has been launched in line with Paytm Money’s efforts to offer next-gen and AI-driven tech to elevate user experience,” the company said in an official release. The voice trading feature enables a single voice command, with the use of neural networks and natural language processing (NLP) to allow instant processing.

Also read: Paytm share allocation likely on November 16 at Rs 2,150 apiece

Varun Sridhar, CEO of Paytm Money said, “At Paytm Money, our focus has always been to elevate user experience and be the first to leverage technology to make investing faster, cheaper and easier. With a mobile-first and interconnected world of devices and the much-awaited launch of 5G, the voice trading feature enables users to skip the usual five to six-step process of trade in a dynamic environment with simple voice commands.”

“We believe that this will improve user experience over time and will bring more convenience to tech-savvy investors. We are doing a lot of R&D on newer technologies and this is one of the first products to be launched,” added Sridhar.

The platform is rolling out the voice trading feature in beta to select users. It will be available to all users over the coming weeks, it said.

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