Neo bank funding more than halves in pandemic even as FinTechs race ahead, BFSI News, ET BFSI
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Funding activity to the sector has dropped around two-thirds in 2020 over the sharp jump in 2019.
Total funding to the sector stood at $32.2 million over seven deals against $109.4 million raised through 13 deals in 2019, according to a report. In 2018, $31.9 million was raised across nine deals.
This year, there have been seven deals so far raising $22.2 million.
Around 16 new neo banks or digital banks were launched in 2019, 10 in 2020.
The Open deal
However, several large deals are in the pipeline. Amazon, Google and card network major Visa are separately eyeing a stake in neo-banking startup Open, which is looking to raise a new round of funding of about $100-$120 million, two people aware of the matter said. If successful, Open’s valuation is likely to jump three times to around $600-700 million post the funding round. Even as negotiations with the global technology majors like Amazon and Google are underway, Open is also in talks with a leading sovereign wealth fund as well as private equity firm TPG as they look to participate in the funding round that could be oversubscribed.
What is a neo bank?
Neo banks are 100% digital in nature. They operate entirely online without any physical branch. Neo Banks offer multiple financial services from money transfer to opening a bank account. Neo banks partner with the traditional banks and help them acquire customers in the most seamless manner.
ICICI Bank, India’s largest private bank has taken a lead in the Neo Banks segment and has partnered with three Neo Banks, Open, Instant Pay and Yelo.
Neo banks in India
In India lack of regulations have somewhat hindered the growth of this sector as banking regulator RBI does not recognise these companies as a separate class of banking intermediaries yet. Hence, neo-banks in India are loosely defined and don’t follow any standard regulatory code. Rather, the regulations follow the nature of partnerships they form with licensed lenders. However, a fully functional neo-bank may need approvals to be a business correspondent, a payment aggregator and require a formal agreement with a regulated bank detailing ethical lending practices.
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