While the neobanking space in India was buzzing in 2020 with many pure lending and wealth management start-ups diversifying their offerings to enter the segment, financing activity plunged 70.57% per year. compared to a sudden jump in 2019.
Total funding raised in 2020 in the neobanking sector amounted to $ 32.2 million in 7 transactions compared to $ 109.4 million raised in 13 transactions in 2019, according to data from Tracxn. Investments in the sector resumed in 2018, where $ 31.9 million was raised from nine deals, compared to just $ 9.6 million from four deals.
In 2021, since the start of the year, there have been seven deals to date, generating $ 22.2 million.
Sujith Narayanan, co-founder and CEO of the neo-banking start-up, said Fi Activity area mentionned a number of neobanks, including Fi, were launched in 2019, so much of the early funding poured into space that year. “Building a full-service neo-banking platform takes time. Unlike building a UPI payment app which would take two to three months, you work here with banking partners and have to create the whole range of services including KYC, integration, statements, debit cards – you create the whole infrastructure stack and it takes time. The gestation period is much longer, around 18 months, for neo-banking start-ups as has never been done before in India, ”explained Narayanan.
Fittingly, around 16 new neobanks or digital banks were launched in 2019, 10 in 2020, and at least two in 2021.
Fi launched its first product, a bot suggesting savings in May 2021. The platform has a few lakhs of users on its waiting list and has 1,000 customers per day. Over the next 24 months, he plans to have two million customers.
“When it comes to millennials, inertia is a major problem when it comes to investing and saving. We have created an automated bot that makes it easy to back up. For example, every time you order from Swiggy or shop on Amazon, the bot will ask you to keep 50 to 100 aside to save money, ”he said.
The big fish
Most neobanks target active professionals in the 21 to 35 age group. Major India investors in the space include Matrix Partners India, Sequoia Capital, Better Capital, Rainmatter Technology and AngelList.
In terms of total funding raised to date, Niyo leads the pack with $ 49.35 million so far. Next came Avail Finance which raised $ 37.75 million and Open at $ 36.24 million. However, all three players reported staggering losses in the fiscal year (FY) ended 2020. Niyo’s losses were $ 12.4 million for FY20, up from $ 4.6 million. for fiscal year 19. For the same period, sales amounted to $ 4.2 million in FY20 compared to $ 3.1 million in FY19.
For Open, losses increased to $ 6 million in FY20, from $ 984,400 in FY19. The startup posted revenue of $ 1.2 million, compared to $ 73,900 in fiscal 2019.
“We are still in the investment phase. During this period (FY19-20), we launched several products, invested in technology and people. We also acquired two other companies, ”said Virender Bisht, co-founder and CTO, Niyo Activity area. Founded in 2015, Niyo has to date served over two million customers and has approximately half a million active users.
Why the neobanks?
Unlike traditional banks, neobanks have focused on a particular segment.
“Banks offer one-size-fits-all products and services. Online banking is used by a person between the ages of 19 and 70. In contrast, neobanks focus on the segment they focus on, ”Narayanan said.
“Neobanks work with existing banks and try to create a layer of customer value. Companies like Niyo, Jupiter and Epifi (Fi) have partnered with legacy banks offering more solutions to clients. Others, like Open and RazorpayX, are at the service of SMEs and MSMEs. A few others create a customer offer on a prepaid product, ”Bisht explained.