While the Neobanking space in India has been abuzz in 2020 with many pureplay lending and wealth management start-ups diversifying their offerings to enter the segment, funding activity plunged 70.57 per cent as compared to a sudden jump in 2019.
Total funding raised in 2020 across the neobanking sector stood at $32.2 million over 7 deals against $109.4 million raised through 13 deals in 2019, according to data from Tracxn. Investment in the sector picked up in 2018, wherein $31.9 million was raised across nine deals as compared to just $9.6 million across four deals.
In 2021, year-to-date, there has been seven deals so far raising $22.2 million.
Sujith Narayanan, co-founder and CEO, of neobanking start-up, Fi told BusinessLine said a number of neobanks, including Fi, launched in 2019 so a lot of the early funding flowed into the space that year. “It takes time to build a full-service neobanking platform. Unlike creating a UPI payment app which would take two-three months, here you are working with banking partners and have to build the whole gamut of services including KYC, onboarding, statements, debit cards – you are creating the entire infrastructure stack and that takes time. The gestation period is much longer, around 18 months, for neobanking start-ups as it has never been done before in India,” Narayanan explained.
Rightly so, around 16 new neobanks or digital banks were launched in 2019, 10 in 2020 and at least two in 2021.
Fi launched its first product a savings suggesting bot in May 2021. The platform has a few lakh users on its waitlist and has been signing up 1,000 customers per day. In the next 24 months, it plans to have two million customers.
“When it comes to millennials, inertia is a big issue in investing and saving. We have created an automated bot which makes it easy to save. For instance, every time you order from Swiggy or shop from Amazon, the bot will ask you to keep ₹50-100 aside as savings,” he said.
The Big Fish
Most of the Neobanks are targeting working professionals in the age group of 21-35 years. Top investors in India in the space include Matrix Partners India, Sequoia Capital, Better Capital, Rainmatter Technology and AngelList.
In terms of total funding raised till date, Niyo leads the pack having raised $49.35 million so far. This is followed by Avail Finance which raised $37.75 million, and Open at $36.24 million. However, all the three players have reported ballooning losses in the financial year (FY) ended 2020. Niyo’s losses stood at $12.4 million in FY20 up from $4.6 million in FY19. For the same period, revenue stood at $4.2 million in FY20 against $3.1 million in FY19.
For Open, losses increased to $6 million in FY20 from $984,400 in FY19. The startup clocked in revenue of $1.2 million up from $73,900 in FY19.
“We are still in the investment phase. During this period (FY19-20), we have launched multiple products, invested in technology and teams. We also acquired two other companies,” Virender Bisht, Co-founder & CTO, Niyo told BusinessLine. Founded in 2015, Niyo has till date serviced over two million customers and has around half a million active users.
Why Neobanks?
Unlike traditional banks, Neobanks have been focussing on a particular segments.
“Banks have been offering products and services with one size fits all. Online banking is used by someone who is 19 as well as a 70 year old. In contrast, Neobanks have a razorsharp focus on the segment they are focusing into,” said Narayanan.
“Neobanks are working with existing banks and trying to create a customer value layer. Companies like Niyo, Jupiter and Epifi (Fi) have partnered with incumbent banks offering more solutions to customers. Others like Open and RazorpayX are servicing SMEs and MSMEs. A few others are creating customer offering over a prepaid product,” Bisht explained.