Can India have a Digital 🏦 Bank?
Can India have a Digital 🏦 Bank?
The answer to this question is ‘NO‘ as of now.
Then how India's neo banks serving there customers.
The answer to this is traditional BC (Business Correspondent) Model. Which many of the BFSI professional are aware about.
But wait the problem is not solved yet 🙂
The bank can only have one primary account per KYC customer which means
>More than one neo bank cannot, technically, use the same underlying bank
>A neo bank cannot "open an account" of the underlying bank's existing customer
How Indian Neobanks are providing various services under one Umbrella ?
With the use of innovative fintech solutions, including API Integrations, neobanks are seamlessly acquiring customers.
Challenges with this model
Limited revenue potential and therefore viability problem
High capital cost (need to rely on expensive equity capital to fund the operations)
Way forward
Niti Aayog floats discussion paper on licensing and regulating 'digital banks' can provide the much-needed boost to the FinTech’s to grow and expand.
it recommends a three-step approach:
Step 1: Introduce a restricted Digital Business bank license. The paper advocates allowing digital business bank license to “Nonfinancial businesses” (NFBs) in the similar lines proposed by Singapore's Monetary Authority of India (MAS).
Step 2: The applicant acquiring this restricted license enlists in the regulatory sandbox and commences operations as a Digital Business bank in the sandbox.
Step 3: On basis of satisfactory performance of the licensee in the sandbox, the initial set of restrictions can be progressively relaxed to advance the licensee to a full-stack digital business bank license.
Digital Business bank may be required to bring in ₹ 20 crore of minimum paid-up capital. Upon progression from the sandbox into the final stage, a Full-stack Digital Business bank will be required to bring in ₹ 200 Crores (equivalent to that required of the Small Finance bank).
FinTech initiatives into a FinTech revolution.
India has the opportunity to leverage existing enablers
National ID
Credit information architecture (credit information companies)
A real time payments protocol (UPI)
An emerging open banking regulatory framework (account aggregators)
By eliminating the need for partnerships with legacy banks, the new license will help existing neo-banks and new contenders transition to full-stack digital banks. And the potential revenue opportunities arising from this are spectacular.
Source :-
https://www.indianeconomy.net/splclassroom/what-is-the-business-correspondent-bcs-model-for-financial-inclusion/
https://www.niti.gov.in/sites/default/files/2021-11/Digital-Bank-A-Proposal-for-Licensing-and-Regulatory-Regime-for-India.24.11_0.pdf
https://www.moneycontrol.com/news/business/companies/niti-aayog-floats-a-discussion-paper-on-licensing-and-regulating-digital-banks-in-india-7757131.html
Fintech Inside #13 - 5th Dec, 2020 | Neo Banking (substack.com)
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