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NEW DELHI : With the advent of technology, many banking transactions can now be done just with a click at the comfort of the home without the requirement to visit any bank branch.

 A lot of fintech companies such as neo banks have also emerged to provide seamless customer experience with respect to banking transactions. Neobanks partner with regulated banks/NBFCs and offer financial services without any physical branches. But absence of direct regulatory licensing for these platforms was considered as one of the headwinds to the growth of this industry.

“The time has come for neo banks to fit in the differentiated banking license framework," said Shruti Rajan, partner, Trilegal law firm. Rajan was speaking at Mint’s Annual Banking Conclave. 

The discussion revolved around the services being provided by neo banks, challenges and regulations for the industry. Other panellists included Virender Bisht, co-founder and chief technology officer, Niyo; Sumit Gwalani, co-founder, Fi; Swastik Nigam, co-founder and CEO, Winvesta; and Kunal Varma, CEO, Freo. Despite calls for regulations, neobanking players emphasized that they will continue to rely on partnerships with conventional banks to conduct their business. 

There are currently three types of neobanks – savings-led, credit-led and payments-led. In terms of savings-led, on asking why a customer must open an account with a neo-bank and not directly with the bank, Gwalani from Fi said “Most of the millennials and Gen-Z generation don’t even understand their finances." Citing a Deloitte study, he said eight of ten millennials have no clue about their finances. “Finance is not something taught in school like trigonometry and there’s a stigma around this subject and thus not talked about much in gatherings as well. Our mission is to demystify the finances and help users maximise their savings. This is the value add over the traditional banks," he added. Bisht from Niyo believes there is a segment of customers who are looking for online only digital bank accounts. 

Varma from Freo said “the percentage of population that are able to borrow from structured financial institutions such as banks is 8% while the population that is able to borrow from anywhere (including informal sources) is 42%. So, the gap for proper access of credit where one can borrow money reliably and build credit profile is massive." He strongly believes that not just businesses, customers also need credit lines. Getting flexible access to money through the convenience of a smartphone is one of the differentiators on the credit side, he added. 

 Nigam from Winvesta said “traditionally, international investing/banking are being provided only to high-net worth individuals. We trade with rest of the world to the tune of about $ 700 billion and that is expected to go to one trillion dollars in the next 5-6 years. We are able to open an international bank account or a brokerage account for a customer quicker than it is domestically." 

Most neo banks in India now depend on partnerships with other banks. When the partnership doesn’t work out, there could be a problem to the customers. Having no license framework for the neo banking space was highlighted as one of the challenges for the industry. 

“We have always looked at innovation with high degree of caution. Time has come for neo banks to fit in the differentiated banking license framework. The differentiated banking license provides exceptions to the universal banking license," said Rajan. The panel unanimously believe that partnerships will be the way to go forward even after the industry is brought into license framework and can act individually.

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