India neobanks future outlook: the power is in Gen Z and Gen Alpha?

Neobanks are reshaping India’s banking landscape, rapidly gaining ground by offering tech-savvy consumers and underbanked populations a unique, accessible, and digital-first banking experience. As India aims to become a $7 trillion economy by 2030, neobanks are poised to expand their market share, but not without navigating critical challenges like profitability and trust.

Rising demand for neobanking services in India

1. Tech-savvy consumers:

• India is home to a young, digital-native population with over 60% of its 1.4 billion people under the age of 35 (Gen Z and Gen Alpha consumers). This demographic shift, coupled with the rapid adoption of smartphones and mobile internet, has created fertile ground for neobanks to thrive.
• In 2023, the Unified Payments Interface (UPI) recorded a 59% YoY increase in transaction volume and a 45% rise in transaction value, reflecting a broader shift toward digital banking.

2. Underbanked populations:

• Government initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the Digital India program have increased financial inclusion from 53.95% in 2011 to 86.71% in 2021.
• However, many rural areas remain underserved by traditional banks due to geographical challenges. Neobanks leverage mobile banking to reach these populations, making financial services more inclusive and accessible.

Key neobanking practices and innovations

Quicker onboarding and lower fees:

• Neobanks have streamlined onboarding processes using e-KYC, allowing new customers to open accounts in minutes.
• By operating without physical branches, neobanks can offer lower fees, zero-balance accounts, and seamless digital transactions, attracting a broader customer base.

Innovative customer experiences:

• Personalized financial tools: Neobanks like Jupiter, Fi Money, and Freo provide personalized financial insights through their apps, helping users manage spending and investments effectively.
• Collaborative features: Features like split-the-bill services and joint accounts by neobanks enable seamless financial collaboration among users.

Community-driven support and engagement:

• Community-driven support forums and comprehensive knowledge bases have reduced the need for dedicated customer service, enabling neobanks to focus on automation and user self-resolution.

External authentication and AI:

• Leveraging open APIs and external authentication methods, neobanks simplify account setup and enhance data accuracy.
• AI chatbots, predictive analytics, and biometric authentication are improving fraud detection and customer support, driving user engagement.

Growth projections and challenges

India’s neobank market is expected to grow at a CAGR of 25% to 30% from 2020 to 2025. Neobanks are poised to capture significant market share, particularly among SMEs, gig economy workers, and tech-savvy millennials who prefer digital-first banking solutions. Neobanks in India, such as the top 5 neobanks, including Jupiter, Fi Money, and Freo, offer innovative banking experiences through digital savings accounts, prepaid cards, and seamless mobile banking. These credit-led neobanks cater to business banking needs, providing business banking solutions for small business owners and small and medium enterprises (SMEs) without any physical branches.

Unlike traditional banks, neobanks don’t rely on brick-and-mortar branches but partner with traditional banking institutions like Federal Bank, Axis Bank, ICICI Bank, IndusInd Bank, Yes Bank, DCB Bank, Equitas Small Finance Bank, and IDFC First Bank to offer a comprehensive range of products and services. This partnership allows neobanks to provide INR 5 lakh insured deposits, a range of financial products, and money transfer services comparable to physical branches.

However, profitability and trust remain significant challenges. Many neobanks have yet to achieve profitability due to high customer acquisition costs and their reliance on venture funding. Regulatory uncertainties and security concerns pose additional challenges, especially given the absence of core banking infrastructure and traditional banking platforms.

Despite these challenges, the neobanking sector in India looks promising for 2024 and beyond, with neobanks playing a significant role in fulfilling India’s digital banking services needs. Emphasizing digital banking, open banking, and consumer banking, neobanks are projected to become integral to India’s financial landscape by 2024 and 2025, enhancing the banking sector’s emphasis on digital innovation.

You’ll find more information about neobanks on our website:

Future of neobanks in India

Conclusion: the power of neobanks is in Gen Z and Gen Alpha

Gen Z and Gen Alpha are emerging as the primary drivers of neobank growth in India. These digitally native generations are not just tech-savvy but also expect seamless, mobile-first banking experiences tailored to their lifestyles. Neobanks, with their intuitive apps, quick onboarding, and personalized financial tools, resonate strongly with these younger demographics. By offering vibrant, cutting-edge, and luxurious banking solutions, neobanks have positioned themselves as not just financial services but a lifestyle choice for Gen Z and Gen Alpha, who prefer convenience and innovation over traditional banking methods.