Neobanks
have been able to service Small and Medium Businesses with high efficiency
since they are built on a modern technology stack which is internet-first and
saves on the costly (and questionably – redundant) network of physical
branches. SMB neo-banking is a US$ 6B+ market opportunity, offering diversified
products in each of banking products, financial products, enterprise application
tools and digital customer collections.
The
market is growing on the back of 4 major growth drivers:
- With
the increase in digital penetration, SMBs are adopting technological tools to
streamline their business management like accounting, invoicing, payroll
solutions, and other similar offerings
- Digital
transactions are expected to go up from the current 100M per day to 1.5B per
day in 2025 leading SMBs accessibility to digital banking services like net
banking, wallets, UPI etc.
- Large
unmet credit demand that neo-banks can cater (INR 25 Trillion), especially
given more than 84%+ avail this from non-formal channels
Attractive
SMB customized policies to be launched by IDRAI to increase insurance
penetration, currently underpenetrated at ~5%
While
Neobanks seem to ‘disrupt’ banking services, traditional banks also have a lot
to gain from these partnerships:
- Neo-banks
act similar to Direct Selling Agent (DSA) for the traditional banks to onboard
new customers, at better CACs. Banks typically spend ~5X to acquire the same
customer
- Superior
UI/UX design and the tech-stack of the Neobanks provides better experience to
the customers, difficult for traditional banks to build and evolve rapidly
- Access
to customer data, enabling cross-sell opportunities that are core to full-scale
banks, largely untouched by Neobanks
- Access
to newer markets, especially regional and interior parts of country where
physical presence may not be economical
Even
with such strong value propositions, business management and banking products
are unlargely derpenetrated in the Indian SMB market – with immense potential
to unlocked through FinTech.
Authored by (at the time of writing):
Vaibhav Tamrakar, Senior Vice President - PGA Labs