For Indian neo-entrepreneurs, neobanks are a smart choice
Let’s start with a story. Not so long ago, a small businessman, who runs a small courier company, managed to land a big contract with an e-commerce company. To cope with this increase in business, he needed two things. A GPS system at your own pace and a private vehicle loan for a bicycle. The GPS system he wanted cost over Rs 1.5 lakh and the bike roughly the same. His bankers were happy to offer him a debt for the bike but not for the GPS system. They insisted that he take out a personal loan for it. Interest rates for which were not favorable. He shopped at a few banks, not all of them knew what category a GPS system would fit into. It was touch and go until the end, but he took out a personal loan to adapt the device to the tempo. This whole process took him a month. A process that should have taken minutes, if not seconds.
He had an impeccable credit history, his books were in order and it was a long-term contract, which would pay him the GPS system several times over. But this is just a bottleneck in India’s traditional banking system. A bottleneck that the neobanks have started to resolve.
A neobank can be described as a 100% digital bank that only exists on computer networks and server racks. They have no physical presence and the main function is customer service. These new era entities are partnering with traditional banks and NBFCs to gain faster access to capital for SMEs. To put it simply, think of the neobank as the advisor who can ease the tedious approval process of the existing banking system.
A traditional banker will tell you that the Reserve Bank of India (RBI) has not recognized neobanks. That is not exactly correct. Although a separate licensing system for neobanks has not yet been institutionalized, nowhere has the banking regulator declared that such entities are not permitted. Your data is completely secure since it is the partner bank / NBFC that issues the loan.
To cover short term operational needs, you can avail unsecured working capital loans.
By partnering with traditional lenders, a neobank is able to offer an unsecured loan, quick disbursement and automatic repayments. Even if there is a marginal decline in credit history due to the nature of the business, loan disbursements will not be affected.
But neobanks do not limit themselves to facilitating access to debt, even if this is an important function. Apart from loans, one could use the services of the neobank either to access cash advances, business credit cards and online subscriptions for recurring payments.
Moreover, you can also use it as a one stop shop for all financial needs, whether it is group medical insurance for employees, payroll services for staff, tax payments or even accounting integrations.
A key value-added service in the neobanks product suite is access to data-driven information. They provide customers with granular data and analysis of their business in dashboard-like formats. This means that users have access to all payment / loan data, giving them a clear view of cash flow and an overview of their finances.
An old bank would only offer these services against payment of a fee. But with the very heart of neobanks being digital, data analysis becomes part of their basic loan / payment offering.
SMEs would be able to choose depending on the nature of the business and the length of payment. For example, a retail company would need warehouse-related payments integrated into a single dashboard, while a high-tech company would need automated fee collections and payments.
Since the banking regulatory space in India is still at an evolving stage, niche licenses may be offered to neobanks in the future.
India is home to the biggest startups that are now creating unique products and services for the world.
Neobanks will add spring to their efforts towards profitable growth. The road to financial freedom is now clear.
The opinions expressed above are those of the author.
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