The time to go beyond just digital payments is here, and 2021 could well be the marker for a new financial world where the lines between banking and technology become increasingly blurred, said Shashank Kumar, Co-founder of Razorpay, on the sidelines of YourStory’s Future of Work event, the country’s biggest design and product diaspora.
While digital payments have solved a very big pain point for the financial sector and reduced several barriers to the entry of financial technology in all aspects of human lives — personal, professional, business — it still just scratches the surface of the problems financial processes and systems present.
“For example, a small business needs to worry about its revenue, what they’re paying the employees, business taxes, complying with different regulations, and filing those compliances…all these things, put together, equal a significant amount of time,” said Shashank, adding with most of these processes done manually in India, business owners spend anywhere between 15 percent to 20 percent of their time doing these back-office tasks, when they could be, instead, focusing on building the business.
That is where neobanks can make a difference. They can not only digitise these offline processes, but also offer specialised and personalised services to solve specific pain points faced by a cross-section of consumers.
Neo banks imagine the world of a consumer in a much more specific way than traditional banks do. Shashank likens traditional banks to a railway network — helping customers get from point A to point B, and mandated to serve everyone that’s there.
But neobanks are much more personal — they can take users on a more personalised journey, stopping where they need to, using whatever transportation they want to.
“That personalisation aspect comes from hyper-focus on a segment, and enables neobanks to take the problems of that specific segment and figure out how they can be solved using fintech solutions and leveraging the vast financial infrastructure that is already present in the country. That is where neobanking comes into the picture,” Shashank explains.
Specifically in business banking, or providing holistic banking solutions for businesses, there is a dearth of software that can bring together, on one platform, the various aspects of financially managing a venture, such as tracking sales, getting a sense of what’s working for a business and what isn’t, automating repetitive tasks, generating insights that can help streamline operations, etc.
“Imagine that kind of efficiency and the scale of millions of businesses in the country a platform like that can help bring. I think that’ll give a huge productivity boost to businesses in the country,” Shashank quipped.
“That is where this whole idea of neo banking comes in for us — how can we marry extremely great financial software, with the very strong financial infrastructure and banking infrastructure we have, as well as bring a layer of personalisation, machine learning, and AI on top of it, and help serve businesses in the best possible way,” he added.
Solving for small business loans
An area neo banking can make a big difference is in the SME credit sector, which is vastly underserved today by fintechs and traditional banks alike. A lack of a public database, uniformity in compliance filings and paperwork, as well as verified cash flow statements make it difficult for companies to serve the SME and MSME sector — but neobanks can do a good job there.
By simply providing a platform where SMEs can record their cash inflows and outflows, file taxes and other compliance documents, as well as record precisely their receivables and payables, a neobank need not look outside of its own ecosystem to verify the business’ loan eligibility.
“Even during the pandemic, while most of the lenders withdrew from the market, we expanded our portfolio and gave more loans, because we were able to very clearly see and segregate which are businesses were still doing well, which could see some recovery down the line, and which ones could sustain the panic caused by the pandemic. And that’s all because of new banking products and digital payments products that we have been able to provide,” Shashank explained.
The future of neobanking
Shashank says that traditional banks are themselves quite enthusiastic about digitising, and are increasingly exploring partnerships with startups and fintech ventures.
“There are a lot of forward-looking banks who realise that it’s not about competition, but it’s about partnership, it’s about cooperation and going to market together. Large banks are the fundamental building blocks of our country, and they have been operating that space for decades, so they understand banking more than fintechs do. I think that partnership is extremely important.”
He adds that in the next three years, we can definitely see some kind of policy framework emerging for neobanks, which will help them penetrate even deeper into the country.
“You can’t make a sector mainstream without proper regulatory support,” Shashank said.
A big shout out to our Future of Work 2021 Co-presenting Sponsors Hewlett Packard Enterprise and Unique Solutions; Digital Excellence Partner, Google Cloud; Associate Sponsor HP and Intel; and Sponsors: Atlassian, Freight Tiger, Archon I Cohesity, TeamViewer, and Pocket Aces.