Startup Idea: The NeoBank I’d Start

Banks suck. They suck in every possible way, from having too many fees, to their own staff not knowing the features and charges of their products, to having too many products, to being slow to do anything, to having useless support and useless RMs, and more. Almost anything you can think of, banks screw up.

This has led to a wave of neobanks in many countries around the world.

This blog post describes the neobank I’d start if I were starting one:

  • It would be customer-driven. People are at the center, not the bank, nor its products, nor its “channels”.
  • There would be only one kind of account. This eliminates the overhead customers go through to choose the right kind of account. And everyone has more important things to do in their life than figuring out how (if at all) Kotak Edge is different from Kotak Edge Pro. Having only one type of account also eliminates the situation of wrong information being given by bank employees, which happens often, because they themselves don’t know all the product variations. If even their own employees can’t understand it, that shows it has become overly complex. So simplify [1].
  • We won’t offer fixed deposits. Nothing prevents us from offering a higher interest rate to savings accounts. Creating FDs and redeeming them is unnecessary complexity for users, and complicates tax calculations.
  • We’ll unify savings accounts and current accounts. Think of it as a savings account that permits an unlimited number of commercial transactions. Or as a current account that pays interest.
  • In India, all banks are required to offer a “basic savings account”, which is a zero-minimum-balance account with a prescribed set of benefits, like a debit card with no annual fee. But we’ll offer these benefits to all customers. There won’t be a difference between a normal and a basic savings account, which is one fewer decision for customers to make.
  • We’ll have only one kind of debit card, rather than making customers choose between Silver, Platinum and Copper. And it will be a physical debit card, not a virtual one, since the former can also be used in shops.
  • There won’t be any fees, whether for account opening or a debit card annual fee. No minimum balance will be required. If you don’t have money for a few months, you should be able to withdraw every paisa from your account and not be punished for it. Your account should serve you, not the other way around. There won’t be any fee for online transfers, like IMPS, RTGS or UPI.
  • You create an account online, via a web or mobile app. Filling paper forms won’t be required, and won’t even be an option [2]. Once you sign up, you’ll have to complete the KYC process, which requires submitting identity proof and address proof [3].
  • Unlike today’s banks, where you negotiate for certain things, everything will be standardised here, just as you don’t negotiate with Uber for a 10% discount in order to take a ride. Negotiation is a zero-sum game.
  • We won’t have a branch network. That’s a legacy operating model. Our office will also double as a branch in that customers can come by to meet us in person, but other than that, there’ll be no branches.
  • We won’t have an ATM network. Customers can use other banks’ ATMs to withdraw money.
  • We won’t offer legacy payments like cheques or drafts. You won’t be able to issue a cheque, or deposit a cheque issued to you. You won’t be able to deposit cash, since this is an online bank.
  • We’ll do everything in-house, rather than partnering with third parties, since they might give wrong information, behave discourteously with the customer, etc. For example, we’ll ask the customer to courier the KYC documents to us. We could instead partner with another company for document pickup. But if the customer asks them what documents are required, they may give wrong information. If the documents are rejected later on, the customer will be annoyed, and blame us, as he should. So, don’t partner with third parties, who don’t really care about our mission, how we work and what we stand for.
  • You’ll be able to give access to your account to others, with limits. Your child may have a limit of ₹5000 a month. Or a founder may create accounts for his employees, each authorised to withdraw his salary amount, but not see what the balance is. Just as a Google Doc can be shared with multiple people with different access levels like edit, comment and view, so can our bank account. Sharing your account eliminates the need for a joint account.
  • If I try to transfer ₹7000 to someone, and I have only ₹4000 in my account, the bank will transfer the ₹4000 immediately and the rest as soon as it’s available. With legacy banks, I have to transfer money into the account from another account and retry the transaction manually. Instead, it should happen automatically [4].
  • When doing online transfers, people lose millions by typing in the wrong account number. To prevent that, I pay ₹1, ask the recipient to confirm that they got it, and only then transfer the rest. This can be automated: our bank will have a Safe Transfer option where our bank transfers ₹1 and send the recipient an email with a link to click when they got the money. No login will be needed, since the recipient likely won’t even have an account with our bank. When they confirm, they’ll get the rest of the money. This will be used for the first payment to a new account.
  • The world is globalised, so ours will be a multi-currency bank account. If I as a consultant work with US clients, and they pay me in dollars, the bank will keep it as dollars rather than converting it to rupees. Likewise for other currencies. So the account won’t have one balance. It can have multiple balances in different currencies like ₹90,000 + $4000. When I pay for an online service like 1Password in dollars, it’s paid from my dollar balance, without incurring currency conversion charges, delays and bureaucracy. And when I pay in rupees, it’s paid from my rupee amount. And if I don’t have enough rupees, as many dollars as necessary will be converted to rupees automatically and the payment will go through.
  • In India, the government offers deposit insurance up to ₹5 lakh. If you have more balance than that, you’ll get a notification to invest them in a liquid fund / money market fund, for greater returns, without much more risk. We’ll choose a fund that offers instant redemption, and the least risky among mutual funds. If you’re okay with the proposal, you invest with a single click. And when you need money, it will be withdrawn automatically from the fund. In this way, the account will be a sweep-in account.
  • You can also define a rule that says that all balance above ₹5 lakh will automatically be swept into a liquid fund.
  • You’ll also be able to choose an equity fund for retirement savings. Many people have too much money lying around in their bank account without saving it.
  • We won’t offer hundreds or thousands of funds, which will only confuse people. Say 3, in increasing order of risk: a safe liquid / money market fund which optimises for not losing money, a balanced fund [5], and an international equity fund. You’ll be able to drag a slider to select one.
  • You’ll be able to define financial goals in the app, like “I need ₹90,000 to buy a scooter by Dec 31 2020”. The app will suggest how much to save, and that money disappears from your withdrawable balance, so you don’t spend it, though it will still be in your bank account [6].
  • We’ll nudge users to act in their best interest. Say, when their salary gets credited, they’ll immediately receive a prompt to save 30%, and spend the rest. Not the other way around. Or if they get an unexpected but large payment, like a bonus, suggest that they save it.
  • The bank will analyse customers’ usage patterns and flag deviations. Say you pay your broadband bill every month but you forgot this month. You’ll get a notification asking, “Did you forget to pay your broadband bill?” You can call it machine learning or AI in today’s marketing hype-driven world :) We can encourage users to maintain a streak, to gamify the experience. How can we manipulate users in their own interests?
  • You’ll be able to sweep money beyond some limit, not just to a mutual fund, but also to another bank account, even at another bank. Setting up these rules reduces the manual overhead the process of you managing your bank account.
  • We’ll have an open API so that customers can use apps to manage their money. We’ll be strict about privacy, security, fraud, illegal activities, etc, but not about apps’ business model or managing money in unforeseen ways.
  • Instead of paying interest, the bank can reward you in kind. Maybe all customers who have a high enough balance get free Everything Insurance, which covers life, medical and disability insurance. Getting insurance is a hassle, that so many policies. What if you can get it automatically? We can price insurance better by risk-profiling people from their transactions and the app. This is information insurance companies don’t have. Or can we provide high-value clients a free financial advisor, with their access to the advisor’s time increasing as their value to us increases? There are a lot of ways to reward users other than interest, and we can explore these.
  • You’ll have a relationship manager (RM) who’ll be your single point of contact. You won’t have to repeat yourself to different people again and again, as with today’s banks. The bank app will have a chat function to reach your RM, like WhatsApp, but secure, since everything will be logged. This is a reason why banks don’t let you place requests over WhatsApp, but a logged version of it will be secure enough to use for this purpose. It will also have a voice call function, which is again better than a phone, because it’s logged. And a video chat. You’ll also be able to send attachments (say showing an error you’re encountering) and receive them.
  • Your RM will handle all aspects of your relationship with the bank, like a bank account, credit card, or loan. Unlike today’s RMs, who deal only with the bank account, and say that credit cards are not their department. This is not customer-centric.
  • Today’s RMs are often not authorised to do a variety of things even regarding the bank account, partly because the bank doesn’t fully trust the RM. If the RM takes some action on your behalf, saying you told him to do it over a phone call to his mobile phone, who knows whether you really did, since calls are not recorded? So banks distrust their RMs. But we’ll trust our RMs. And since customers communicate using our app, it will all be logged, so the bank can give RMs a freer reign. RMs are less likely to act fradulently on customers’ behalf when they know that it’s all recorded. If there’s a doublt as to whether the customer really authorised something, the recording can be listened to. Beyond that, if the user needs to authenticate by typing a PIN, he can do so in the app itself. Say, you ask your RM to do something like issue a cheque book. The RM can say, “Yes, but you need to authenticate.” He presses a button in his app, and in your app, a prompt appears saying, “if you want a chequebook, enter your PIN / scan your fingerprint / whatever”. You authenticate, and the RM will say that the chequebook is on its way. Existing banks have this kind of authentication only at their call center, not for their RMs, but that restriction needn’t be there. Authentication can also be done in-app rather than over an IVR. The former is a better user experience.
  • We’ll pay more to RMs and support people than existing banks do. Pay peanuts, and you get monkeys. People who worked for years in customer-hostile companies will be disqualified from a support role at our company, because we don’t people with deeply ingrained bad habits. Better to hire people without work experience.
  • RMs will wear a suit and tie when they meet clients. Treat yourself with respect, and others will.
  • Everyone does support for a day a month, all the way up to the CEO, to understand customers’ problems. Maybe everyone will be an RM, even if for only one customer.

In summary, there are so many things a neobank can do better.

[1] If the bank wants to give more benefits to high-end customers, it can do that without having different kinds of accounts. They can always identify customers who’ve maintained a high balance and reward them in some way, like by enabling free lounge access for them. There’s no need of the complexity of having different kinds of accounts.

[2] This eliminates people who are not comfortable with the Internet, which is good for us and them.

[3] If this is required to be done offline, as it is in India, we’ll ask the customer to courier these to us, and give him a checklist to make sure he hasn’t forgotten anything. India does permit eKYC, but that limits your bank balance to ₹1 lakh. The customers who’d be okay with that are not the kind of customers we want. We want high-value customers. So we won’t offer eKYC. Besides, eKYC needs to be followed up with a paper KYC in a year, so we might as well do the paper KYC to begin with.

[4] There can be an option for me to say, “Pay the entire ₹7000 at once when the money is available”.

[5] With 65% allocated to equity, because that qualifies for lower tax in India.

[6] If you want to spend the money that was set aside for a specific need, you could have an accountability partner who needs to approve. Or add a delay before you can spend it, a speed bump.

On-demand Leader. Earlier: IIT | Google | Solopreneur | Founder | CTO | Advisor