Chapter 2

Book Chapter

A Study On Impact Of Digital Financial

Inclusion Of Youth In Bengaluru – NEO
Bank Perspective

Shaila K ∗1 , Deepashree A J †2 , and Suchitra.V.G ‡3

1
Associate Professor, Acharya Institute of Graduate Studies, Bengaluru– 560107
2
Assistant Professor, Department of Commerce- PG, Acharya Institute of
Graduate Studies, Bengaluru– 560107
3
Assistant Professor, Department of Commerce- PG, Acharya Institute of
Graduate Studies, Bengaluru– 560107

Abstract
This study is about the impact of digital financial inclusion of youth in Bengaluru –Neo
Bank perspective. Youths are the main target consumers for Neo Banks as they adapt to
new products and services faster than any other age group. The impact of Neo Banks is
more on youth in their usage. The primary data has been source to measure and conclude
impact efficiently using descriptive analysis. Neo banks started gaining trust but the services
are to be improved likewise the popularity.
Keywords: Descriptive Analysis (DA). Digital financial Inclusion (DFI). Non Banking finan-
cial company (NBFC). Financial inclusion (FI).

∗ Email: [email protected] Corresponding Author

† Email: [email protected]
‡ Email: [email protected]

10
 1 Introduction
Financial inclusion is providing access to financial services, products, services, and instru-
ments. Digital financial inclusion as a global development agenda.(Ozili, 2022). However,
The social dynamics of financial engagement with new technologies demand a shift away
from a simplistic individualistic adopter/non-adopter binary framework and a ’supply-
oriented’ financial infrastructure.(Aziz & Naima, 2021). Research claims that Street mer-
chants mostly rely on loan sharks, who charge exorbitant interest rates ranging from 350%
to 800% annually, in the lack of official credit. (Bhowmik & Saha, 2013). Digitalization
of financial services started gaining popularity after the demonetization in India. And
after there was a major pandemic hit globally, it caused most of the industries a recession.
Developing countries, particularly in Asia, are adopting and enhancing digital financial
inclusion to help alleviate poverty.(Tay, Tai, & Tan, 2022). Technology plays a significant
part in corporate development and has a significant impact on financial results and man-
agerial strategies as it develops throughout time.(I. Mittal & Bansal, 2023).Mobile banking
has become a viable method to increase underprivileged populations’ access to financial
services as a result of the widespread use of mobile technology, especially in developing
nations.(Das & Selvamani, 2024).
There is a need to follow the fundamental principles of digital financial inclusion to
regulate the activities of financial institutions and their agents in the digital provision of
financial services, enhance regulatory oversight of innovative financial products and service
systems, and safeguard the rights of financial service consumers in Ukraine.(Naumenkova,
Mishchenko, & Dorofeiev, 2019).

1.1 Neo Bank

The COVID-19 pandemic, coupled with significant digital transformation, has compelled
global participation, leading to widespread acceptance of mobile payments. (Al-Qudah
et al., 2024). Further, Due to new phenomena, issues with international trade brought
on by supply chain disruptions worldwide, and geopolitical conflicts, the business climate
has grown more unstable and complex in recent times.(Okr�glicka, Mittal, & Navickas,
2023). Digital payment apps gained more usage and that became highest profitable indus-
try during the pandemic. Then people were more found having personalized services in
banking as in the pandemic, the public faced financial problems due to the non-availability
of transportation and banking services during the lockdown. Then the neo-banks started
to emerge establishment in India when there were no players or competition in the mar-
ket.A neobank is distinct from a ”challenger bank.” While both aim to compete with large,
long-established national banks, a challenger bank is a chartered financial institution—a

Integrated Business Excellence- Synergizing Management, Finance, HR, and Marketing 11

Editors: Madhavi. K, P. Venkiah Babu, Bhargava. N
DOI:10.48001/978-81-966500-6-3-2 | ISBN: 978-81-966500-6-3 | Copyright ©2024 QTanalytics®
 smaller, more innovative retail bank specifically established to attract business away from
traditional banking giants. Neo Banks are banking service providers that only exist digi-
tally with no physical branches or outlets. Europe has emerged as a key growth area for the
neo-bank industry. Similar to the US, regulatory reforms have facilitated this expansion.
In 2018, the European Union introduced the Second Payment Services Directive (PSD2),
mandating that banks open their payment infrastructure to third-party providers.
These banks provide services by having partnerships with the existing traditional
banks. They provide personalized services to their users by collecting their primary data.
That means it is unique to every user that they get customized service based on their
needs.Neo-banks have gained popularity among users transitioning to digital platforms,
but their varying experiences in different economies have sparked both skepticism and
optimism. Concerns arise regarding issues such as expansion, profitability, competition,
and market saturation. Conversely, there is optimism about their overall potential.

1.2 How Neo Banks personalized the service?

Modern banks utilize open application programming interfaces (APIs) to facilitate the
exchange of information between the information systems of various organizations us-
ing standard data transmission protocols. The implementation of open APIs impacts
the information security of banks, specifically concerning the protection of information
assets.(Gorodianska, Nosenko, & Vember, 2019). They are based on the concept of Ar-
tificial Intelligence and Information technology and neither any physical branch has been
formed.Enhancing public sector services including the banking sector in particular would
require this integration.(P. Mittal & Gautam, 2023).
The user interface of these banks is easy to use and they constantly take the user
preference and update it accordingly to make it easier and more helpful to user to use
the service. These banks provide customer support that is available throughout the day
and all the days of the week through the use of chatbots and virtual assistant. The
services are personalized according to the customer needs and some banks provide the
options to customize their needs and set financial goals and the banks will provide the
tools required to reach them in specified time. The Banks monitor their customers and
keep them informed about their updates, expenses and investments plans by providing
written notification to them through text messages and mails.

1.3 Indian Neo Banks:

Major changes have occurred in the competitiveness and market structure of Indian bank-
ing. (Monis & Pai, 2023). Neo Banks do not have a banking license as traditional banks

Integrated Business Excellence- Synergizing Management, Finance, HR, and Marketing 12

Editors: Madhavi. K, P. Venkiah Babu, Bhargava. N
DOI:10.48001/978-81-966500-6-3-2 | ISBN: 978-81-966500-6-3 | Copyright ©2024 QTanalytics®
 but they must obtain non-banking finance company (NBFC) license. The partnership
banks have all the rights to access the information about the bank financial information
and other information. RBI also has access to financial information, features and pro-
cesses. It must be constantly monitored by partnered banks and RBI. Neo banks will
follow the rules about data security that is given by the partnered bank. During the
opening of account and the investment the partner banks will monitor about KYC rules
of neo bank.

1.4 Rules to be followed by neo-banks:

• The Payment and Settlement Systems Act of 2007
• Rules and instructions from RBI about usage of technology for financial service, privacy
and security. There are currently 15 Neo Banks that are operating in India.(see table
1)

1.5 Impact of Neo banks on youth

In Indian population 60% of them are youth. In Karnataka 21.73% of state’s youth
reside in Bengaluru making it district with highest number of youths in whole state.
Bengaluru is India’s silicon city which biggest software hub in the country that generates
highest foreign fund flow to the country. This way Bengaluru is exposed to best of the
technology, infrastructure and financial services of the country. As we see the youth
are highly adaptable to any change that is same with digital financial services. In the
digital financial services these are neo banks which provide personalized service that is
mostly wanted by youth who want everything personalized as their social media and
entertainment. These Neo Banks also provide the lending service to users which will be
useful and acts as the pocket money to youths and help managing the small and daily
expenses of users. These Neo banks also provide the good rewards depending on their usage
and preferences. This is also the tool used to gain more customers. These banks provide
the deep transparency that users will be able to see all the charges and details about their
profile, this also provides the user interface that allows user to see their expenses of their
months. That can develop habit of monitoring their expenses and also habit of saving
more. That is the necessary habit to the youth who will be facing the financial space in
their future. But as much as neo banks are gaining more trust and some people are using
lending without their need making them to borrow at unwanted times and this study aims
to understand this impact and usage.

Integrated Business Excellence- Synergizing Management, Finance, HR, and Marketing 13

Editors: Madhavi. K, P. Venkiah Babu, Bhargava. N
DOI:10.48001/978-81-966500-6-3-2 | ISBN: 978-81-966500-6-3 | Copyright ©2024 QTanalytics®
 Table 1. Neo Banks

Name Partner Bank Installations (Nos) Establishment

Fi money Federal Bank 1 crore 2021
NiyoX Equitas Small Fi- 50 Lakhs 2021
nance Bank and
Visa
Jupiter Federal Bank 63 Lakhs 2021
Instant Pay ICICI Bank 10 thousand 2022
Razor Pay Visa and 71 Banks 10 Lakh 2014
Fampay IDFC First Bank 1 crore 2019
Freo Save Equitas Small Fi- 1 Lakh 2022
nance Bank
Chqbook NSDL Payment 10 Lakh 2020
Banks
Akudo RBL Bank Limited 10 Lakh 2022
Mahila Money Transcorp, Visa, 1 Lakh 2021
My Shubh Life,
Avail Finance, and
Shivalik Bank
Zikzuk Yes Bank, RBL 1 thousand 2011
Bank, Indusland
Bank
Finin by Open SBM Bank 10 thousand 2019
Fold Sutton Bank Not found 2021
Tide Clear Bank 1 Lakh 2017
Mool SBM Bank 1 Lakh 2020

2 Objectives of the Study

• To understand the nature and extent of Neo Banking
• To identify the factors that determines Banking services
• To measure and analyze the usage of Neo Banking on youth

3 Methodology Used
The authors Khera et al.’s (2022) have created a unique financial inclusion via the internet
index that spans 52 developing and emerging markets to assess its effect on financial
inclusion. They discovered that the use of digital banking services has served as a key

Integrated Business Excellence- Synergizing Management, Finance, HR, and Marketing 14

Editors: Madhavi. K, P. Venkiah Babu, Bhargava. N
DOI:10.48001/978-81-966500-6-3-2 | ISBN: 978-81-966500-6-3 | Copyright ©2024 QTanalytics®
 factor in the expansion of financial inclusion, exhibiting substantial regional and national
differences as well as the greatest advancements seen in Africa and Asia. Policies are
required to close the digital gap, guarantee continued advancements in financial inclusion,
as preserve public confidence in financial institutions in light of the COVID-19 pandemic’s
quick expansion in the use of digital payments.
Study by Adityadev and Jagadeesh’s (2023) used a combination of primary and sec-
ondary data collection methods. Primary data was gathered through questionnaires and
surveys directed at various respondent groups, including users of digital credit services,
neo-banks, and traditional banking systems. Secondary data was collected from articles
and published research about digital financial services.

4 Tables and Figures

Table 2. Neo Bank Holders

Terms Percentage of respondents holding a neo

bank account
Yes 39.6%
No 60.4%

Table 3. Neo banks are more efficient in opening the account

Terms Percentage of respondents

Strongly agree 34%
Agree 28.3%
Neutral 30.2%
Disagree 7.5%
Strongly disagree 0%

Integrated Business Excellence- Synergizing Management, Finance, HR, and Marketing 15

Editors: Madhavi. K, P. Venkiah Babu, Bhargava. N
DOI:10.48001/978-81-966500-6-3-2 | ISBN: 978-81-966500-6-3 | Copyright ©2024 QTanalytics®
 Table 4. Neo Banks provide good interest rates for their users than traditional banks

Terms Percentage of respondents

Strongly agree 15.1%
Agree 28.3%
Neutral 32.1%
Disagree 18.9%
Strongly disagree 5.7%

Figure 1. The Percentage Of Respondents Using Digital Cards

5 Analysis and Interpretation

The survey results indicate that neo banks have not yet achieved widespread adoption
among the respondents, with only 39.6% holding a neo bank account compared to 60.4%
who do not.(see table 2) A vulnerable population is unable to use digital products for
financial inclusion—which is essential to their present financial well-being—is caused by
a lack of financial literacy. The digital revolution has made things more complicated and
has led to an overuse of digital financial products. Because it is very easy to implement,
financial literacy has consequently grown to be an important policy instrument for enhanc-
ing people’s financial well-being.(Mandal, Saxena, & Mittal, 2022). This limited adoption
impacts the eligibility for digital credit cards, as only 32.1% of respondents are eligible
while 67.9% are not, likely due to the low number of neo bank account holders.(see figure
1).

Integrated Business Excellence- Synergizing Management, Finance, HR, and Marketing 16

Editors: Madhavi. K, P. Venkiah Babu, Bhargava. N
DOI:10.48001/978-81-966500-6-3-2 | ISBN: 978-81-966500-6-3 | Copyright ©2024 QTanalytics®
 Despite this, a significant portion of respondents perceive neo banks as efficient in
opening accounts, with 34% strongly agreeing and 28.3% agreeing, suggesting positive
user experiences. Additionally, 34% agree and 26.4% strongly agree that neo banks can
improve the standard of living, reflecting optimism about their potential benefits. (see
table 3).In terms of financial management, 35.8% agree and 26.4% strongly agree that
neo banks help gain better control over expenses and funds, indicating confidence in the
financial tools provided by neo banks.
However, opinions are more mixed when it comes to interest rates, with 32.1% of
respondents being neutral, 28.3% agreeing, and 15.1% strongly agreeing that neo banks
offer better rates than traditional banks, while 18.9% disagree and 5.7% strongly dis-
agree.(see table 4). This neutrality suggests uncertainty or a lack of sufficient information
among respondents about the comparative interest rates offered by neo banks.Researchers
are working on volatility measure predicting as a result of emerging differences in the
economy-wide risk factors that affect financial security pricing. (Gupta & Mittal, 2008).

6 Conclusion
It is evident from the data that a sizable percentage of the respondents reside in cities.
Male students pursuing commerce make up the majority of those surveyed, and pocket
money is typically their primary source of income. Although a significant portion of
the respondents are aware of Neo banking services, not all of them are making use of
them. The ability to open accounts on several platforms is provided by Neo banks, yet
many respondents do not take use of this opportunity. Nonetheless, it is clear that Neo
banks are starting to acquire popularity and the confidence of the younger population.
This pattern suggests to a gradual but continuous rise in young people’s adoption and
acceptance of Neo banking services.

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Integrated Business Excellence- Synergizing Management, Finance, HR, and Marketing 19

Editors: Madhavi. K, P. Venkiah Babu, Bhargava. N
DOI:10.48001/978-81-966500-6-3-2 | ISBN: 978-81-966500-6-3 | Copyright ©2024 QTanalytics®