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The primary bank accounts of professionals (salary or business income) are expected to drive the growth of neobanks in India and provide an addressable market of 120 million, according to consulting firm Redseer.
In addition, there is said to be an opportunity to address about 25 million additional accounts of new professionals every year. The estimated 120 million professionals (steady income earners) currently represent around 80 per cent of the addressable banking ARPU or average revenue per user.
Growth opportunities
The findings further suggest that a majority of the professional’s banking ARPU is driven by primary income accounts. Thus, the value for neobanks lies in becoming the primary banker for steady income earners and professionals.
Kanishka Mohan, Associate Partner at Redseer, said, “The product offerings of neobanks are still at a nascent stage, so the immediate play for neobanks is to target accounts with a steady income, thus differentiating themselves from traditional savings accounts. A huge step in the direction of success for neobanks involves becoming the primary banker for the target group; this holds the potential to generate a 10X Lifetime Value (LTV) compared to secondary accounts.”
Currently, salaried professionals rarely choose their preferred salary account provider as companies/employers choose a default provider for their employees. However, as per the findings, salaried professionals prefer banks that offer better service.
Different models
Neobanks work on three models globally, of which two are relevant in the Indian context. The first model involves pure-play virtual banks, where digital platforms partner with incumbent licensed banks to offer tech-driven and niche offerings. The second model includes neobanking operations of traditional banks that function autonomously and compete with stand-alone neobanks through repackaging of existing offerings.
The third model involves digital-only banks that have a fully operational banking licence, offer independent financial services, raise capital and lend on their own; this model is yet to make its way to the Indian context.
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