India’s rural areas continue to face significant challenges in accessing financial services. Traditional banks have been unable to establish a widespread presence in remote regions due to high costs associated with brick-and-mortar infrastructure, limited banking infrastructure, and a lack of financial literacy. However, the rise of neobanks offers new hope for rural customers to access banking services, especially through digital channels. In this article, I explore the potential of neobanks to empower rural customers in India.
The State of Rural Banking in India
Despite recent advances, rural banking in India remains a significant challenge. A 2018 report by the Reserve Bank of India (RBI) revealed that only 48% of India’s rural population had access to formal banking services. This lack of access has led to financial exclusion, limited credit availability, and an increased reliance on informal lending sources. Furthermore, India’s rural population continues to struggle with financial literacy, exacerbating financial inclusion challenges.
The Role of Neobanks in Rural Empowerment
Neobanks have the potential to address many of the challenges faced by rural customers in India. These digital banks leverage digital infrastructure to provide low-cost banking services tailored to rural customers’ specific needs. For example, neobanks can offer microcredit facilities, enable online payment transactions, and facilitate remittances. Additionally, neobanks can provide financial literacy education and other value-added services that can help rural customers make better financial decisions.
Neobanks also offers several advantages over traditional banks in serving rural customers.
- Neobanks are built on digital infrastructure that allows them to serve customers remotely without the need for brick-and-mortar branches.
- Neobanks can provide cost-effective banking solutions tailored to rural customers’ unique needs.
- Neobanks can leverage data analytics to offer rural customers personalized services and risk assessments.
Examples of Neobanks in India
Several neobanks have already entered the Indian market, targeting both urban and rural customers. For instance, Open is a neobank that offers a suite of banking services, including digital account opening, expense management, and invoicing. The bank focuses on serving small businesses and entrepreneurs, many of whom are founded in rural areas. Since its inception in 2017, Open has raised $37 million in funding, indicating the significant demand for digital banking solutions in India.
Another example is Fino Payments Bank, which operates through a network of banking agents in India. Fino Payments Bank has a strong presence in rural areas and offers a range of banking services, including deposits, loans, and insurance. In 2019, Fino Payments Bank raised $67 million in funding to expand its operations and provide better banking services to rural customers.
Data Insights on Neobanks in India
The demand for neobanking solutions in India is on the rise. A 2020 report by RedSeer revealed that the digital lending market in India is expected to reach $1 trillion by 2023, driven by a growing demand for online loans and other financial services. Neobanks have emerged as key players in this market, offering low-cost banking solutions that are tailored to the unique needs of rural customers.
According to a 2021 report by Research and Markets, the Indian neobanking market is expected to grow at a CAGR of 50% between 2020 and 2025. The report also indicates that neobanks in India are expected to gain significant market share due to their low-cost solutions and ability to leverage digital infrastructure.
Neobanks cater to the specific needs of rural customers who may lack easy access to traditional banks through low-cost solutions. Neobanks can potentially drive rural empowerment by promoting financial inclusion and creating opportunities for economic growth. With the Indian government’s focus on financial inclusion, neobanks have a significant role in ensuring that rural India is not left behind in the digital revolution.
Author- Vinayak Sridhar
Author Bio- Vinayak heads the Marketing and Inside Sales domain at SabPaisa. He has a keen interest in emerging technologies, innovation in fintech and a zealous need to align marketing and sales for overall growth.