Payment apps and neobanks are the apps on your phone through which you pay, send money and, more and more, hold your bank account itself. In India, the phone has become the place from which most people pay.
Take, for example, a college student in Bhopal who buys a ₹45 glass of sugarcane juice from a cart outside her campus. She scans the UPI QR code stuck on the cart. She types ₹45 and her UPI PIN. A small speaker on the cart announces that the payment has arrived. In the evening, she pays her hostel mess bill from the same app.
The app she used is a UPI payment app. UPI, the Unified Payments Interface, is a public system that moves money from one bank account to another within seconds. The app does not hold your money. Her money stays in her account at her bank. The app only sends the instruction to move it.
A digital wallet works differently. It can hold money that you load into it in advance, or it can store your card details. Then you can pay with one tap, without typing your card number each time. In India, wallets made QR code payments common even before UPI.
A neobank goes one step further. It is a bank account that exists only as an app, with no branches. Most Indian neobanks do not have a banking licence of their own. A licensed partner bank holds the customers' money, and the neobank builds the app on top of it. This arrangement is called banking as a service. Some neobanks are now getting licences of their own.
So the difference between a payment app and a bank is becoming smaller. Payment apps are adding loans, insurance and investments. Some let you pay a shop from a credit line on UPI, which is an amount you may borrow whenever you need it. But behind every one of these apps, your money is still recorded in a bank's core banking system.