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The RBI (Reserve Bank of India) is taking a hard look at the neobank business model where fintechs plug into a conventional bank’s network and become customer-facing banking service providers.

  • The concern is that the digital model business can scale up very fast and could grow to be bigger than the underlying bank in terms of customers.
  • Although neobank customers continue to be accountholders of the underlying bank, the only channel available to these users is the fintech-owned digital platform.
  • A neobank is a kind of digital bank without any branches. Rather than being physically present at a specific location, neobanking is entirely online.
  • Neobanks are financial institutions that give customers a cheaper alternative to traditional banks.
  • They leverage technology and artificial intelligence to offer personalised services to customers while minimising operating costs.
  • Neobanks entered the financial system with the tag of ‘challenger banks’ because they challenged the complex infrastructure and client onboarding process of traditional banks.
  • In India, these firms don’t have a bank licence of their own but rely on bank partners to offer licensed services.
  • That’s because the RBI doesn’t allow banks to be 100% digital yet.
  • The RBI remains resolute in prioritising banks’ physical presence, and has spoken about the need for digital banking service providers to have some physical presence as well.
  • RazorpayX, Jupiter, Niyo, Open,etc are the examples of top Neobanks of India.