About 80% of the Indian population has a bank account. That sounds like a good figure until you find out that nearly 48% of these accounts are inactive. Rural areas, middle- and low-income families, and young people still remain underbanked. Individuals or families that may have a bank account but use alternative financial services are considered underbanked. The reasons may be lack of convenience and affordability. Some people may also say they don’t have enough money to put in a bank account.

Unequal access to finance and low financial literacy makes a large population in India rely solely on cash. Without a bank account, these individuals are left financially vulnerable. As James Baldwin said, “It is expensive to be poor.”

However, there is hope. Fintechs are bringing a banking revolution in India, especially through digital banking or neobanks. One of the many benefits of neobanks is that they aim to serve India’s unbanked or underbanked communities and individuals.

Digitization Is Key To Financial Inclusion In The 21st Century

It’s challenging to provide financial services to many rural areas of India through traditional banking systems. Banks find it unprofitable to open brick-and-mortar branches in these areas because of insufficient money stored and transacted. But, with millions of smartphone users across India, mobile banking is an excellent opportunity to serve the unbanked and underbanked.

The convenience that comes with online banking is attractive for urban areas as well. However, customers in India have been generally dissatisfied by their traditional banks’ glitchy and confusing apps. Neobanks offer the best digital savings accounts by bringing cutting-edge technology to banking and ensuring a great user experience.

Fintech Enables Innovative Business Models That Benefit Underbanked Customers

Large traditional banks make a huge chunk of their money from specialty loans to high-income customers, credit cards, business loans, mortgages, etc.  That’s why these institutions often underserve the middle to low-income individuals.

Neobanks run on a different business model than traditional banks. They make money through interchange fees by merchants on consumers’ purchases, fees on instant peer-to-peer payments, and investment spreads. Some neobanks also offer freemium or multi-tiered subscription-based pricing.

This business model and the fact that neobanks have no costs associated with brick-and-mortar branches enables them to charge lower upfront fees. There may be low or zero monthly maintenance fees, ATM withdrawal fees, or commissions. Some neobanks even let customers open accounts with zero balance.

Fintech Makes Banking Simpler And Gives Customers Greater Control

Banking is perceived as tedious and obscure by many people. This perception may result from a lack of transparency, hidden fees, and fines on insufficient funds. That’s why people that live in typical underbanked areas often mistrust the formal banking system.

Years of neglect and low financial literacy make these communities think of traditional banks as exploitative. Fintech, however, can potentially turn this perception around. For instance, neobanks are lauded for their transparency. You can get easy-to-understand reports and insights on the app itself.

Neobanks prioritize user experience and may have options for personalization as well. These features help decode banking, make customers gain greater control of their finances, and build trust.

Fintech Brings The Promise Of Security And Peace Of Mind

Many underbanked and unbanked Indians  with no savings account hide their savings in cash in their homes. This may be an amount saved up for their daughter’s wedding or a small business, etc. Many Indians don’t open bank accounts because of the fear of fraud and the reasons we talked about earlier and this puts their savings at risk.

Neobanks use advanced security measures to protect their customers’ funds. For example, they include biometric verification, encryption of data, fraud detection, and more. Neobanks also streamline the process of ongoing compliance since everything is online. There’s no need for frustrating bank visits at any point in time.

Fintechs have the potential to empower people that the traditional banking industry has sidelined for years. Neobanks are like a breath of fresh air for rural communities, low-income families, women, students, and other underbanked or unbanked people in India.