Authors: Maryam Naik, Neha Bhowmik, Mehul Das Gupta, Omkar Mahajan

ABSTRACT

Neobanks represent a new wave of digital-first, branchless financial service providers that are gradually reshaping the financial landscape both globally and in India. Their emergence reflects a significant transformation in banking, as they integrate innovative technology, cost efficiency, and a customer-oriented approach into sectors that have traditionally been conservative and resistant to rapid change. In India, the growth of neobanks can largely be attributed to strategic partnerships with licensed banks and non-bank financial companies (NBFCs), which have not only facilitated product innovation but also spurred digital inclusion. Operating entirely online, these institutions aim to bridge the existing gap between traditional banking services and the evolving preferences of a tech-savvy clientele. However, despite their groundbreaking advancements, neobanks often find themselves navigating a regulatory grey area, as there is no specific licensing framework guiding their operations. This ambiguity not only impacts market dynamics but also influences how risks are allocated and affects public trust in digital finance. This research delves into the evolution, adoption, and regulation of neobanks in India, drawing insights from various studies focused on regulatory frameworks, financial inclusion, cybersecurity, and operational challenges. It emphasizes the vital role of government institutions, particularly the Reserve Bank of India (RBI), in shaping the neobank ecosystem while highlighting ongoing issues related to service autonomy, user trust, and regulatory oversight. The findings suggest that while advancements in technology have fueled rapid growth and inclusion, the long-term sustainability of this ecosystem necessitates a careful balancing act between innovation and stability, achieved through enhanced governance and risk management practices. The paper argues that the future success of neobanks in India will hinge on the establishment of a clear licensing framework, bolstered digital safety, increased financial literacy, and improved public confidence through well-structured supervision and accountability mechanisms.