Banking infrastructure and neobanking in India, explained
By Abha Lohia · Startup Decoded
Neobanks are apps that offer banking services but usually run on a licensed bank's licence. Banking infrastructure companies build the software that lets banks and other firms offer those services.
What is a neobank?
A neobank is a digital-first provider of banking services such as accounts, cards, payments and savings. In India, most neobanks are not banks. They are apps that partner with a licensed bank, which holds the deposits and carries the legal responsibility. The app brings the design, the customer and the extra tools.
Digital banking and financial services firms in StopDown's data include Slice and Navi, and Fino Payments Bank is an example of a licensed payments bank.
The appeal for customers is clear: open an account in minutes, see spending in one place, get a card and pay by phone. The weakness is that a bank account is a habit, and most people already have one. A neobank must give a reason to move salary or savings, such as better tools for a niche group like students, freelancers or small businesses.
Types of bank licences
The RBI gives different licences. A universal bank can offer all banking services. A small finance bank focuses on smaller borrowers and savers. A payments bank, introduced from 2015, can take deposits up to a cap and offer payments, but cannot lend. Cooperative banks are another group with their own rules.
A startup can get a licence of its own, which is slow and tightly capped, or partner with an existing bank, which is faster but means sharing earnings and depending on the partner.
Because a startup's own licence is slow to get and capped, partnerships dominate. A partner bank gains new customers and a tech front end, and the startup gains access to a regulated account. Both sides carry risk if either makes a mistake, and the RBI expects the bank to be in control.
What banking infrastructure means
Banking infrastructure covers software and services behind the app: core banking systems, account opening, card issuing, KYC, lending engines and APIs. Banking-as-a-service, or BaaS, lets a company such as a retailer or payments app offer accounts and cards by plugging into a partner bank through those tools.
A StopDown headline noted that Neokred widened its bank programme for UPI and card acquiring, an example of an infrastructure firm growing with bank partners.
Core banking software is old in many banks, and replacing it is slow and costly. That is why modern infrastructure firms often sit beside the old system, adding new features such as instant account opening or card controls through connectors, instead of replacing everything at once.
How neobanks and infrastructure firms earn
Neobanks earn from a share of interchange, the fee a card network pays on each card swipe, a share of the net interest a partner bank earns on deposits and loans, fees on premium accounts and commissions from products they sell, such as insurance and credit. Their weak point is that customers often keep little money in the account, which limits income.
Infrastructure firms earn from software licences, per-account or per-transaction charges, and project fees from banks. These contracts tend to be steady but slow to win.
Unit economics are challenging. If a customer keeps a small balance and spends modestly, interchange and deposit income are small, while the cost of KYC, support and fraud checks is fixed. This is why many neobanks add credit cards, personal loans and savings products as extra income.
Rules, as of October 2026
The RBI regulates banks, payments banks and small finance banks, and it sets rules on outsourcing. A bank remains responsible for customers even when an app serves them, and it must manage partner risk. The RBI has also pushed banks to be careful about what fintech partners can say to customers, for example, not suggesting that an app is itself a bank when it is not.
KYC rules apply to every account. Under the account aggregator framework, a customer can share financial data from one institution to another through a licensed account aggregator with consent. Deposits in banks are insured up to ₹5 lakh per depositor per bank by the DICGC. Check current RBI notices before relying on any detail, and speak to a professional for legal advice.
Banks and their fintech partners must also protect customer data and report fraud. Payment limits, know-your-customer renewals and grievance handling are part of daily compliance. A startup that treats these as a core feature, not an afterthought, is less likely to face sudden restrictions.
Risks and what to watch
The main risks are dependence on a single partner bank, a regulator restricting a partner and so freezing the product, low balances per customer, and heavy compliance costs. Some payments banks and neobanks have struggled to find enough income.
Watch whether neobanks shift to lending and wealth to improve earnings, whether the RBI loosens or tightens its rules on partner models, and whether infrastructure firms can turn growth into profit.
A further question is how the sector will be funded. Investors in neobanks have grown cautious after several years of heavy spending, and many now ask how an app will earn profit from each customer, not only how many accounts it has opened.
The breakdown
Business models
| Model | How it makes money | Who uses it |
|---|---|---|
| Neobank on a partner bank | Share of interchange and interest, plus fees | Digital account and card apps |
| Payments bank | Fees and a small spread on deposits, no lending | Licensed payments banks |
| Banking-as-a-service | Fee per account or transaction from companies using the bank's services | Infrastructure providers |
| Core banking and software | Licence and project fees from banks | Technology vendors to banks |
| Cross-selling | Commission from selling loans, insurance and investments | Neobanks and payments banks |
The numbers that matter
- Balance per customer: more deposits give more income.
- Interchange earned per card swipe.
- Share of customers who use the app as their main account.
- Compliance and partner-bank cost.
- Cross-sell rate: how many customers take a second product.
Rules and regulators
| Regulator or law | What it means |
|---|---|
| RBI banking licences | Universal, small finance and payments banks each have their own rules, capital and scope. |
| RBI outsourcing and partner rules | The bank stays responsible for customers served through fintech partners. |
| KYC rules | Every account requires an identity check, which can be done digitally. |
| Account aggregator framework | Financial data moves between institutions only with the customer's consent. |
| Deposit insurance | Bank deposits are insured up to ₹5 lakh per depositor per bank, as of October 2026. |
Risks
- Dependence on one partner bank.
- RBI action against a partner or the app.
- Low balances and thin income per customer.
- High cost of compliance and security.
Banking infrastructure & neobanking: latest on StopDown
- Neokred widens bank programme for UPI and card acquiring 8 October 2026
- Better fund shares neobank microtrend story 7 September 2026
- Decentro wins multiple awards for fintech innovation 3 September 2026
- GetVantage raises Rs 63 crore in Series A1 4 August 2026
- AvenuesAI Q4 profit jumps 63% to ₹89 Cr, revenue more than doubles for FY26 29 May 2026
- Roopya raises ₹4 crore in seed funding 20 February 2026
- Intellend raises $1.2M seed for merchant lending 20 January 2026
Every Banking infrastructure & neobanking story →
Most active investors here
- Adelaar Consulting LLP (1 round)
- Atrium Angels (1 round)
- Chiratae Ventures (1 round)
- Dhananjay Tiwari (1 round)
- Incubate Fund Asia (1 round)
- Inflection Point Ventures (1 round)
- M Venture Partners (1 round)
- Rajeev Ahuja (1 round)
Rounds StopDown covered in the last 12 months. Activity is not a measure of quality.
Questions people ask
Is a neobank a real bank?
Usually not. Most Indian neobanks are apps that work with a licensed bank, and the deposits sit with that bank. Check which bank holds your money.
What is a payments bank?
It is a bank with a limited licence that can take deposits up to a cap and offer payments, but cannot give loans. Fino Payments Bank is an example in StopDown's data.
What is banking-as-a-service?
It is a set of tools that lets a company offer accounts, cards or loans by connecting to a partner bank through APIs, without becoming a bank.
Are my deposits safe in a neobank?
Deposits sit with the partner bank and are insured up to ₹5 lakh per depositor per bank. Check the bank's name, and read the terms of the app.
Which Banking infrastructure & neobanking startups in India raised money recently?
GetVantage (Rs 63 crore ($6.6 million), Series A1); Roopya (₹4 crore, seed); Intellend ($1.2M, seed).
Who invests in Banking infrastructure & neobanking startups in India?
Among the most active backers in StopDown's coverage over the last year: Adelaar Consulting LLP, Atrium Angels, Chiratae Ventures, Dhananjay Tiwari, Incubate Fund Asia.
Which Banking infrastructure & neobanking companies are in the news?
Recent stories on StopDown cover Neokred, Better Fund, Decentro, GetVantage, AvenuesAI, Roopya, Intellend.
More in Financial Services
Startup Decoded · Glossary · Sectors explained · Investor directory · FAQs