What does the future of banking in India look like?

For the longest time, bank customers have expected only the basics from their banks, such as safeguarding their money, paying interest and other generic tools to interact with their finances.

This meant that banks were not motivated to innovate, leaving the average customer’s banking experience largely stagnant.

But the recent boom in fintech innovation and increased internet penetration has brought about drastic changes in customer expectations, altering the path and the pace of change in the banking and financial services industry.

This is evident from two trends that have fuelled each other. Over the past few years, Indian neobanks have seen a massive spike in user adoption.
Money management app Fi Money
had over two million accounts opened this year, while others in the sector, including Niyo, Razorpay and Jupiter, are seeing exponential user growth.

Along with this, the sector witnessed a 5x jump in funding last year and is expected to touch the $215 billion mark by 2030, according to a report by EY. These trends foretell a sector that is ripe for disruption.

Let’s consider some past trends in the financial sector to understand what this scale of disruption could mean for the future of banking in India.

The innovation-expectation cycle

Before UPI came along, bank customers were used to the tedious IMPS and NEFT process for online transactions and access to online transactions was largely limited to a small part of the population.

Post the UPI revolution, the numbers speak for themselves. In the July-September quarter, the digital payments network facilitated 19.65 billion transactions amounting to Rs 32.5 lakh crore.

A similar trend played out in India’s capital markets. Earlier, investors had to rely on brokers and experts, who charged substantial fees for their services.

But a sharp rise in the popularity of discount brokerages has allowed more Indians to benefit from the capital markets than ever before as the number of demat accounts jumped 37% annually to hit 10.7 crore as of November.

Such trends highlight a clear need for convenient digital banking and financial solutions. It also shows that evolving customer expectations can match, if not exceed, the pace of fintech innovation.

The question for the banking sector is, what will fuel the next cycle of innovation and expectations?

A hyper-personalised future

Hyper-personalisation refers to the use of technology and analytics to tailor products and services to meet the specific needs and goals of individual users. An innovative neobank could tailor-make financial services based on its knowledge of a user’s finances to suit their specific needs.

Such a bank will act as a financial assistant, with everything from payments and loans to investments and insurance taken care of, all while operating in the background, letting users focus on things more important to them.

For example, a home loan plays a major role when buying a house. A bank offering hyper-personalised services could look for the best options and cheapest interest rates available and work out the optimal repayment plan based on its knowledge of the user’s overall financial position, allowing soon-to-be homeowners to focus on turning their new house into a home.

These kinds of services are not too far beyond the horizon as apps like Fi Money have already developed
AI-based financial assistants
like AskFi, capable of tracking a user’s finances across bank accounts to deliver deep insights into their financial behaviour.

One can simply ask, ‘How much did I spend on Amazon?’ to instantly get details of all such transactions.

A paperless future

Neobanks have led the way in streamlining cumbersome banking procedures. It takes a couple of minutes on your phone to
open a bank account online
, whereas earlier, it would take a visit to the branch and at least five different documents.

Developments such as the central KYC registry and the Account Aggregator (AA) framework have allowed customers to digitally share their financial and identity data with institutions of their choice, eliminating the need for physical verification of documents.

Lending is one of the few banking processes requiring physical documentation at various levels. Credit services built on the AA framework can provide a fully digital credit assessment process.

The National e-Governance Services (NeSL) can make loan agreements that usually require stamp paper and various other physical documents, entirely paperless. This will completely digitise the application process for all sorts of credit, from business to home loans.

Apps like Fi Money already provide paperless and
instant personal loans
. Such services could soon cover home loans as well.

While the convenience of digital financial products helped improve access to financial services, hyper-personalisation will increase the value and effectiveness of these digital banking and financial services for users. A genuinely paperless experience will remove any friction across banking services.

As neobanks continue to pave a frictionless banking experience, their hyper-personalised and fully digital services will usher in the next revolution in the ever-evolving cycle of innovation and expectations.