🏦 Startups: Taking Banks to Every Village?
India's banking system is unable to reach millions of people. Will tech be able to solve this problem?
"All that glitters is not gold."
This statement perfectly describes the state of our banking system in India.
On paper, 80% of India's 1.38 billion population now has a bank account.
But in reality, 50% of these accounts are inactive.
Why?
😧 Ain't No Banks To Be Found
If you're privileged enough to live in a Tier-1 city, you'll find an abundance of banks around you.
So much so, that these bank branches have become popular landmarks.
But the picture is much different in rural India: there is only one bank between every 12 villages.
Yes! Despite over 60% of our population residing in villages, there are no banks to be found.
17,000 villagers depend on only one bank, whereas, there is one bank for every 4,700 people in urban areas.
Result? Villagers often have to spend a lot of time and money to get access to their cash.
A pilot program conducted in Jharkhand showed that it took villagers 96 hours to get access to the money directly deposited in their accounts and buy rice with it.
No wonder a lot of these villagers have completely abandoned their bank accounts.
But the question remains: Why are banks not creating more branches in rural areas?
💸 Money Rules All
Money.
It takes somewhere around Rs. 27 lakhs each year to run a fully operational bank branch.
And many banks believe they can't get as much revenue from villages to justify this cost.
Enter: FinTechs and Neobanks.
Bank-Genie, just like an actual genie, helps banks conjure up new branches in unbanked areas for just $150 (roughly Rs. 11,500).
The Singapore-based startup was formed after its Indian founder Ram Sharma struggled to find an ATM on a trip to India.
We know what you're thinking: how can Bank-Genie reduce the cost of opening a branch by so much?
Simple, it just cuts down on all the extra expenses of bank equipment, multiple rooms and multiple employees.
Then how does the bank run?
On technology.
The company, like many other neobanks and fintechs, has taken banking completely digital.
So, a bank branch just needs a tablet, a card reader, and a small bluetooth printer to allow basic banking and ATM services to people.
Its tech is so powerful and affordable that it helped Sierra Leone Commercial Bank open 600 branches in just 90 days!
And it's now entering India.
The company will have to tie up with Indian banks to provide its services and help them expand.
And it is not the only company tying up with banks to make banking easier and cheaper. Many fintechs and neobanks are entering this space to make a difference.
🏦 The Neobank Era
We’ve heard a lot about fintechs. But what are neobanks?
A neobank is a financial institution that has no physical presence. It only provides digital banking services (you can read more about neobanks here).
It doesn't really have a banking license of its own but works under the banking license of its banking partners.
Many such banks like Fampay, Jupiter, Open and others have now entered the market.
But don't banks have digital apps now? Why do we need neobanks?
Well, bank apps are usually limited in scope.
Neobanks are advanced. They allow you to open a bank account right from your phone.
Some like Jupiter even allow you to integrate all your accounts into one space, so you can keep track of how much money you have.
Some neobanks also provide their technology to other banks for a subscription, so that these banks can integrate their tech and develop an app.
Because of the speed of use and ease of use, these neobanks have taken India by storm.
But do customers trust these neobanks? After all, such online operations could be a scam. And conscious Indians could shy away from these institutions.
However, surprisingly that hasn't happened.
The sector will have 17.11 million users by 2026 and a transaction value of $47.94 billion by 2022.
Millions are already using these neobanks, even in Tier-2, Tier-3 cities.
These neobanks not only make things much much easier for consumers, but they also help them build a credit history by keeping a track of their transactions.
You see, a lot of people and many small businesses cannot get loans easily because they don't have a credit score or a credit history.
Now, with fintechs and neobanks storing data about their daily transactions, they can create an online credit history and get loans easily.
Plus, as we said, a lot of these apps are connected to legitimate traditional banks that have been around for years. So, customers have also come to trust these neobanks.
These neobanks are now leading a banking revolution in India.
Some experts even believe that they could take over fintech firms like Paytm.
But will they actually be able to achieve their goals?
⚡ In a line: Neobanks and fintechs are bringing a major revolution to India, taking banks to every village in India.
💡 Quick question: Would you use a neobank’s services?
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