Every so often, there’s a buzzword that grabs the imagination of the startup ecosystem. Circa 2018, it was neobanking. Suddenly dozens of fintech startups — large and small — were building a neobank.

Some raised huge seed rounds — see the case of Jupiter or Epifi. But the post-demonetisation bullishness on neobanking has crumbled. India’s neobank dream looks to be over.

Due to RBI rules, neobanks could not replace licensed banks in India, but they expanded the reach of smaller banks by acting as the digital interface and acquisition channel for the banks. Neobanking startups were like co-branded mobile banking apps for actual banks, but the degree of branding depended from startup to startup.

What these startups promised banks is that they could provide the best user experience thanks to their tech-first mindset and approach. This included automating processes and providing add-ons to enable instant account opening, low fees, customisation and niche targeting.

The latter was the way for startups to find their competitive edge by targeting freelancers, teenagers, young professionals, MSMEs, early stage startups and some international companies.

In short, they sought to make banking feel as effortless as using a UPI app. And it reduced much of the bank’s customer acquisition costs and people costs.

Then came the pandemic. As branches shuttered and people avoided physical paperwork, the shift to digital banking accelerated dramatically. Neobanking became more than just fashionable.

From Funding Boom To Bust

As per Inc42 data, neobanking startups in India raised about billion dollars over the course of 2018 to 2023. Open famously became the 100th unicorn in India in 2023 and has raised over $250 Mn, while Jupiter has raised over $170 Mn. That’s not too far from Fi’s lifetime funding of $137 Mn. Meanwhile, the likes of Niyo raised $180 Mn, whereas ChqBook, FamPay and Freo raised $12.3 Mn, $42.9 Mn, $46.3 Mn respectively.

But it’s been a quiet few years in this space since this boom. Most of these apps today offer standalone payments experiences without a bank account. They are distributors of loans and insurance and discount broking, and neobanking has taken a backseat.

In July this year,

© Inc42