The size of the global neobanking market is expected to hit $333.4 billion by 2026, at a compound annual growth rate (CAGR) of 47.1 per cent.
India’s neobank startups raised more than $230 million in 2020, according to recent reports.
Neo-banks or digital banks are online-only fintech platforms that operate solely or via mobile apps, without any physical branches. A neobank primarily positions itself on customer experiences and innovation in product construct.
IANS spoke to Jitendra Gupta, Founder & CEO, Jupiter, on how the cloud technology is helping them fulfil the aspiration to become a bank, providing them next-generation security and maintaining data privacy.
Excerpts from the interview:
Q. How does a neobank such as yours build trust with the customer? On this metric alone, how do you compete with established traditional banks?
A. Trust in banking is a very important factor. And the same can’t be built overnight. One needs to earn it over time with each action and service levels. In our view, a great product with glitch free experience and prompt customer service will earn trust for a neobank.
Q. We have seen the newly listed digital businesses of Paytm, Policybazaar, Zomato etc lose around 50 per cent of market capitalisation post their IPOs. Investors are now focusing on free cash flows and profitability. Neobanks cannot lend and hence don’t make money on net interest margins (NIMs). What is your profitability model?
A. Neo bank models have to be somewhat similar to a bank. Majority of income has to come through NII and the same can be done through co lending models with partner banks. That being said, Neo banks also have the opportunity to tap on creating new revenue models in form of subscription and other fee incomes provided they are able to provide enough value in the product to the consumers. It is similar to how consumers pay for shopping to Amazon for Amazon prime membership.
Q. Smartphone penetration rate in India is estimated to increase to 96 per cent by 2040. What is the total market opportunity for neobanks in India?
A. All financial services companies will benefit due to smartphone penetration. As on date, there are already 750+ million internet enabled smartphones in the market. It has almost doubled in the last 5 years. So, we have all the right ingredients to build a very large and scalable financial services company in this decade itself.
Q. Neobanks leverage the mobile-first model to differentiate themselves by introducing innovative products and providing superior customer service. Can you give us a few specific examples?
A. A neobank primarily position themselves on customer experiences and innovation in product construct. To deliver the same, one needs to invest a lot in data science capabilities. Through DS capabilities, one can deliver a very contextual and personalised experience. As we know, consumer finances are very personalised even though income levels might be similar.
Imagine if we can advise you to invest today by predicting how much money you would have at the end of month. Thus, you would be able to optimise the returns on your idle money. Similarly, we can use spending behaviour to recommend to you whether you would need a credit line during mid-month rather than spamming you for personal loans even though you may not need the same.
Q. How did cloud technology enable you to do that you couldn’t do before?
A. The alternative to the cloud is to build and manage one’s own data centre. For a startup, this is a distraction. In Jupiter we were developing code, deploying systems and testing them within a few weeks of creating an account on AWS. Currently at Jupiter everything runs on AWS — our App, micro services to run business applications, the whole banking experience stack, data analytics, ML Systems etc.
We have witnessed a host of business benefits because of running on AWS.
a. Improvements in business process performance: Pace development and releasing features. At Jupiter we release new versions of Jupiter twice in a week. Business applications are developed, released and monitored continuously. To enable all these we have a dedicated DevOps team. But our DevOps team is quite lean.
b. Cost reductions: Elastic compute and Spot Instances have enabled us to scale based on traffic and control our cost.
c. Decreased time to market: Developer productivity is quite high. With complete automation of SDLC (Software development Life Cycle) developers can concentrate mainly on application development and need not focus on Devops Infra. We do use Terraform where infrastructure is developed and maintained as code.
d. Effective use of resources: With AmazonCloudWatch and cost explorer, AWS allows us to keep tabs on the cost. With CloudWatch events we have been also able to scale up or scale down the resources based on the traffic.
e. Decrease in latency: One of the biggest advantages is different instance types for different workloads. At Jupiter we do have many deep learning models in production. To provide millisecond latency, there are many scenarios where we use GPU instances.
Lastly, being a financial app and with the aspiration to become a bank, security and data privacy are first class requirements for any feature development at Jupiter. Being on AWS enabling end to end encryption and managing the encryption keys has become quite simpler.