Neobanks and Blockchain — a perfect combination
What is a Neobank
A Neobank is an application that sits on top of an existing bank infrastructure to provide a seamless banking experience for customers. Neobanks are purported to be very customer friendly. Currently, most banks are both offline with lots of branches, as well have a significant online presence through net banking and mobile banking. However, for customers, banking is still complicated.
If you look at a typical customer in India, he/she has paytm/phonepe/google pay for payments, groww/zerodha/scripbox for investment, a bank app to check their balances and maybe transfer based on IMPS or NEFT, and possibly a financial planning app or spreadsheet that they maintain. The customer might also have a separate app for the different credit cards that he/she may own such as AMEX. For international transfers, customers might be using services such as Transferwise/UAEXchange.
User experience
The ideal user experience for a customer would a single platform that combines the ease of use of investments, payments, and debt payments by helping the customer optimizing investments based on risk profile, enabling payment through any of the payment methods, and incentivizing credit card repayments through loyalty points/cashbacks.
Neobanks have no physical branches; they are only present online.
As of last year, most neobanks did not have a banking license, and operated with partner banks to offer the bank’s services through APIs. Opening an account with a Neobank happens completely online, and usually takes 5–10 minutes. If the Neobank has a banking license, then the account is opened with the Neobank, else the account is opened with the partner bank. Most Neobanks are available on an app.
Customers
Neobanks have two sets of target customers: Individuals and MSMEs. For individuals, the banking needs revolve around investments, payments, finance planning, long term loans such as home loans, short term loans with credit cards. For MSMEs, the finance needs are much larger — accounts management, tax filings, payroll, invoice and contract management, inventory management, supply chain credit lines, international payments.
Some of the Neobanks in India are: NiYO, Bankopen, jupiter.money (yet to be launched), Yono by sbi, Kotak 811 by Kotak bank, Epifi, payzello, and soon to be launched Euler.network (this is our company :)).
The largest Neobanks in the world are — Monzo, Revolut, N26, Starling, Webank.
Why use a Neobank
Individuals are signing up for Neobanks because it gives them a frictionless experience to managing their finances. The quick account opening process, entire online banking, and smooth user experience of the app, ability to connect all their accounts are some of the reasons why individuals are opening Neobanks.
MSMEs are signing up for Neobanks because it provides them a single interface to manage all their finances.
For MSMEs in India, the biggest problems are around supply chain financing, managing accounting and tax filings, managing cashflows.
These problems may not necessarily be solved by Neobanks, but they can certainly help in the following ways:
a. Supply chain data: Provide banks with authentic data on inventory, invoices, good receivables. Hence, enable MSMEs to quickly apply for a credit line from banks with the due diligence and paperwork happening through the app.
b. Account management: Enable aggregation of all bank accounts in one place, and provide cashflow projections, free cashflow investment options.
c. Tax filings: GST filings, Income tax filings automated and instant.
d. Admin: Automated payroll, company admin tasks.
MSMEs benefit from a Neobank through low cost of operations for their company, as well as high efficiency of finance management, and potential credit lines from banks through showing authentic data.
Why start another Neobank
There are over 35 million MSMEs in India, contributing to 40% of India’s GDP. The biggest area of concern for MSMEs is a reliable credit line. The biggest area of concern for banks is default on loans by MSMEs. Invoice based funding, inventory based funding are two major funding mechanisms that MSMEs use for their business. Enabling banks to see a real time view into the inventory and invoices raised would help MSMEs potentially get access to a credit line.
In addition, MSMEs also need a simplified, low cost finance experience to make running their business easy and simplified.
For individuals, they need simplicity in managing their finances in two major aspects — managing expenses, and optimising investments. They need a vastly simpler user experience than what is there currently, with ease of use and much less clutter to the user experience.
Euler helps MSMEs grow their business by providing a single place to manage their finances, and provide real time data to banks.
Euler helps individuals redefine their banking experience through a seamless interface for investments, payments, and card based loyalty points.
What is the differentiator with Euler?
SMEs not only need help in managing their money, but also in growing their business. Euler aims to help SMEs grow their business by providing services that helps manage their finances and to help show accurate information for potential lenders. We help SMEs get real time data on inventory, Invoices, Goods receivables in order to have the right information to show to potential lenders.
Blockchain guarantees that there are no Fake invoices, no mismatch of inventory, as well as accurate information on company financials and potential customers of the company.
Euler is built on the back of the SHINE Blockchain which provides the benefits of:
a. Audit: Real time audit of the system by banks to ensure compliance.
b. Contract management: Managing contracts with banks, customers, partners in a fully transparent and automated manner.
c. Automated marketplace model: Enabling a marketplace for different services that can be integrated with the Neobank for offering to the MSMEs.
d. Trust and traceability: Ensuring heightened customer trust through showing full traceability of all actions performed on the platform.