The neobanking space in India is under the central bank’s lens as the new business model witnesses rapid growth in customer base, Times of India reported. 

Neobanks serve as the consumer-facing service provider, which leverages traditional bank’s networks. 

The authorities are concerned that such businesses can quickly scale up and attract a huge customer base, which can be larger than that of the underlying bank. 

While customers remain accountholders of the bank, the only channel available to them is the neobanking platform. 

According to the report, currently, there are more than half a dozen ‘reasonably sized’ neobanks operating in India. 

The fintechs do not have a banking licence and rely on the partner bank to offer services such as fund transfer and branded debit cards. 

The Reserve Bank of India (RBI) is aware of the benefits offered by neobanks. They level the playing field for smaller peers allowing them to offer services, which would otherwise require huge technological investment, the report said citing industry sources. 

Neobanks’ other perks include that most of them do not have a minimum balance requirement and they allow smaller businesses to access digital payments. 

The Reserve Bank of India’s working group has suggested that the operations of digital banks/neobanks should be covered under its regulations. 

It has also suggested that digital-only non-banking financial companies should be encouraged and groundwork for digital banks should be prepared.

The neobanking business model is like the white-label model used in ATMs but white-label ATM providers are registered and regulated by RBI.

Neobanks are regarded as outsourced operations for banks, which are responsible for fintechs as well.

Some other nations have started issuing a lite version of a banking licence to tackle this issue. In Europe, fintechs are granted an E-money licence to offer payment services.