Incumbent Banks Vs Neobanks - Personal Finance As A Strategy

With a bunch of novel banking options suddenly available to the Indian consumer, the battle of banks is hotter than ever. Engaging users with  better experiences and personal finance tools is increasingly becoming a pivotal factor in deciding which bank the Indian consumer will choose.

$230M in funding was raised by Niyo, FamPay, Jupiter, and Fi in 2021 alone. These neo-banking solutions, with many more to come soon, will cater to over 10M Indian consumers by the end of this year (projected ).

The Indian consumer is now surrounded by a variety of banking options, from incumbent players to the novel neobanking experience. The checkout page of every consumer app in India is flooded with discounts and rewards from every new and old bank in india. This is happening at a time when the average consumer is looking for personalized, holistic personal finance management to improve financial habits and health.

We believe that building capability around personal finance will be key to market share as the incumbents and neobanks battle it out. Neobanks, with technology as a core competency, are slowly building personal financial experiences that drive growth from acquisition to engagement and revenue. 

But the incumbents, with majority market share, can not move fast on personal finance as a strategy, owing to weak technology capabilities. But the cost of that will manifest as customer churn, in a time when retention is key for the incumbents. 

Personal finance is turning into a priority

With the socio-political landscape pushing for financial inclusion, and increasing awareness among the millennials and Gen-Zs, financial literacy is evolving faster than ever. Indian consumers, aggressively making digital banking a choice, are now more than ever conscious about personal finance.

Consumers are looking to understand and control their expenses, for instruments to save and invest, and to stay on top of their general financial health. All of this was inaccessible to consumers till recently, when the account aggregator framework made an array of personal finance experiences possible. 

Since then, there has been a rise in venture funding for personal finance mandates and then a subsequent rise in the number of personal finance apps and their downloads in India. The modern Indian consumer has made personal finance a priority.

Personal finance as a strategy

Neobanks are leveraging technology to build engaging personal finance features, like summary and analytics on spending, budgets and savings, recommendations on investment options etc.. This is aligned with the foundational principle of neobanking - customer delight.

These experiences impact the entire customer lifecycle for neobanks:
 
●    Acquisition through offering novel personal finance features like limiting spends, tracking budget.
●    Engagement across financial journeys by offering features like round-off savings at checkouts.
●    Monetisation by tracking cash flow and financial behavior and recommending saving and investment instruments.

Neobanks have built rich experiences powered by multiple technologies like Machine learning where users can search for insights like ‘How much money did I spend on food last month?’. 

Technology - The achilles heel of incumbent banks

In a world where most app store ratings are filled with complaints about poor user experience, incumbent banks have a lot to catch up with in this battle of banks. Banks are traditionally slow-moving organizations and are far behind neobanks in terms of digital experiences and offerings. 

●    High time to market with any new digital experience is a massive threat for incumbents.
●    Poor fintech competency puts banks short of deploying advanced technologies and seamless experiences.

The incumbent banks however have a massive moat in the form of historical data that sits close to the digital experiences. But unless they overcome the achilles heel of technology, they won’t be able to extract value from their data.

Building embeddable personal finance 

Backed by the leading fintech players in the industry and some of India’s top venture funds, Fego , a startup based out of Chennai, is building a solution for the traditional banks. By packaging most of the engineering and technology overheads involved in delivering personal finance experiences, they can reduce time to market for traditional banks significantly.

While solving the dependency on technology, Fego’s experiences can be simply embedded by traditional banks in their existing digital presence. With an array of modular personal finance experiences that are optimized for customer delight, these experiences can help incumbents replicate the growth across the funnel that is currently restricted to neobanks.