Large banks are beginning to see neobanks no longer as their digital partners but as competitors, driving the fintech startups toward smaller private lenders. But that has its own challenges
May 19, 2021
9 Min Read
Neobanks have been making quite the buzz recently. Epifi opened a savings product with Federal Bank, Niyo went live with Equitas Small Finance Bank, and Britain’s Revolut announced its India plans. But notice something? No big banks.
These digital-only entities and lenders such as Axis Bank and ICICI Bank have had a somewhat symbiotic relationship until recently. Neobanks help traditional banks digitalize and launch new products online, in turn gaining access to a large number of mainstream banking customers whom they can tap for more business.
But given the successes of SBI Yono and Kotak 811, other highstreet banks too want to develop digital platforms themselves, and are beginning to see neobanks more as competition than as partners, say fintech entrepreneurs operating in the space.
That puts neobanks in a situation. They cannot carry out banking operations on their own because the Reserve Bank of India doesn’t recognize them as independent entities.
Neobanks, still an evolving concept in India, can benefit greatly from partnerships with large banks, which would validate their business models as well as bring them mainstream banking customers. With smaller private banks, neobanks are left to leverage their own distribution and technology capabilities to onboard customers, which poses a challenge in scaling up the business.