Neobanks and Their Impact on Fintech Investment
Neobanks are instrumental in shaping the fintech landscape today. With the GFF approaching, it is a valuable opportunity to contemplate the lessons gathered from the fintech portfolio, particularly since fintech was the primary area of focus when the fund was established.
A crucial part of the approach at Better has been to spot a microtrend early, build confidence in it, and support numerous companies aligned with that microtrend before it achieves widespread recognition. This strategy has proven effective over the years.
Initial Microtrend: Neobanks
The inaugural microtrend identified was neobanks. During 2018/19 in India, this term had not yet gained traction, despite the signs being present. The conviction arose partly from a clear memory of a company named Simple, established in the late 2000s, aimed at creating a modern digital bank tailor-made for small businesses. As a small startup founder at that time, the vision presented resonated deeply.
By 2018/19, it seemed that the necessary conditions were in place in India. A population primarily using smartphones, data connectivity, and UPI as a foundation were prepared for a genuinely modern banking experience. Several teams began to form around this concept, leading to multiple investments: a neobank aimed at Gen Z, one for NRIs, and another focused on SMBs, among others.
Market Evolution and Challenges
Not long after, there was increased confidence in the market, and a number of companies secured funding based on the same concept. The following years were spent observing these entities as they built their offerings while grappling with considerable challenges.
Structural Constraints
The most significant challenge was structural. Obtaining a banking licence in India is not a simple task, and this singular limitation influenced all operations. Without a licence, delivering an all-encompassing customer experience became extremely difficult. Companies found themselves reliant on bank partnerships, which led to delays in product launches and hindered control over the core customer experience. Compliance and infrastructure issues further compounded the difficulties. Despite strong adoption from both consumers and businesses, the road to achieving a complete vision faced persistent barriers.
Success Story: Slice
Slice was the entity that overcame these challenges. By acquiring a bank and establishing itself as a full-stack neobank, it realised the vision many had aspired to for years. Within just a year of becoming full-stack, Slice has emerged as one of the leading credit card issuers in the country, surpassing several established banks, and reported a PAT of approximately ₹46 crore in Q1FY27.
Slice is not the only success from this cohort. Many others remain actively operational and have significantly enhanced customer experiences throughout their journeys. Anticipation surrounds how these companies will tackle the forthcoming stages and unlock further aspects of the initial vision shared by many.
Investment Philosophy
This illustrates precisely why investments are approached in this manner. Identifying the right microtrend, supporting multiple ventures early on, and retaining interest long enough to redefine a category has been the guiding principle. Neobanks represent the first tangible evidence of this strategy in action.
This article is the inaugural segment of a five-part series by Vaibhav Domkundwar, focusing on the microtrends that have influenced his investment path. Neobanks served as the starting point, reinforcing a straightforward thesis: recognise a shift early, support the right founders, and exercise patience as a category evolves. The forthcoming three parts will delve into other microtrends and the insights they presented.