The neobanking landscape is an amalgamation of non-licensed over the top banks, digital initiatives of traditional banks, marketplaces, and licensed challenger banks. This report on neobanks was prepared by MEDICI as a deep-dive study that presents the pulse of underlying global currents in the challenging landscape banks compete in, around the world.
Neobanks offer innovative features and offerings that are different from traditional banks including fast account opening, free debit card, instant payments, cryptocurrencies, lower costs, mobile deposits, P2P payments, mobile budgeting tools, user-friendly interfaces, etc. Here are some of the top innovations happening in this space below:
Growth of neobanks over the years
Neobanking startups have been growing steadily over the last few years. The startup activity in this space started around 2004 and gathered pace after 2011. Here are some interesting observations:
Globally, it’s clear that neobanks are on an upward growth trajectory. As time goes by and neobanks pursue newer markets to provide a superior experience for their customers, these players have increasingly been leveraging the power of partnerships with FinTechs. Why?
Such partnerships help neobanks rapidly add to their existing catalog of services; this, in turn, helps them reduce costs and move towards breaking even. Some of the advantages of these partnerships include benefits like cheaper customer acquisition, increased speed to market with new services, and contain upfront infrastructure costs, to list a few.
Many FinTechs offer a host of banking services without any licenses – simply by partnering with an existing bank, which, of course, has all the requisite licenses. This model is already in use across the world: examples include Revolut and Simple, which outsource their banking responsibilities to banking partners already equipped with licenses. They partner with the banks, offering a holistic suite of comprehensive business banking or consumer banking solutions. This way, the end-customer avails of the banking services as offered by the FinTechs.
However, from a regulatory perspective, the money involved is being managed by the banks the FinTechs have partnered with. Operationally, there are various models to do this; a deeper analysis of this is contained within MEDICI’s report on neobanking.
The region-wise break-up shows the maximum concentration of neobanks in Europe, followed by the Americas.
One finds that the UK has a high concentration of challenger and neobanks owing to two factors, chiefly. One: compared to the US, which has very high numbers of large banks, the UK has far fewer. Two: when it comes to digital banking, the UK can be considered an early adopter, going back to the dotcom boom between the late ’90s and early ’00s. This provided it a ‘prime-mover’ advantage, through which the UK came to be at the forefront of challenger/neobanks and alternative models. Another factor providing the UK with an edge in this space is the EU’s common standards being introduced, which has aided neobanks rapidly expand their customer base while remaining in compliance with regulations.
Europe has been the bright spot for neobanks for the best part of this decade. According to AT Kearney’sresearch, European neobanks’ customer base has grown by more than 15 million since 2011. On the other hand, retail banks’ customer base has declined by 2 million. It is projected that by 2023, Europe’s neobanks will win up to 85 million customers, reaching over 20% of the population over the age of 14.
In comparison to Europe, the US seems to be lagging in the growth of neobanking. It is important to point out that the US is the home of some of the oldest neobanks like Simple (founded in 2009), Moven (founded in 2011), and some relatively new neobanks such as Chime, Varo, and Aspirations. However, neobanking has failed to attract US customers in the last 10 years, andjust 3% of millennials have opened a primary checking account in a digital-only bank. For neobanks to grow in the US, the strategy would be to combine ‘Price + Digital’ and offer easier financial management tools, better rewards programs, and unique user experience for millennials while baby boomers would only care for better interest rates than their traditional bank accounts.
European neobanking appears to be the only success story so far. However, that does not mean other geographies are not promising for neobanking players. There are a few interesting case studies in Latin America, such as Nubank which was recently valued at $10 billion – it has achieved exponential growth in its numbers of customers. However, the real growth is being unlocked in the APAC region where many countries are formulating their own virtual banking regimes. Hong Kong, Taiwan, and Singapore have already rolled out their virtual banking licensing while Thailand and Malaysia are expected to follow suit in the years to come.
For a highly detailed region-by-region analysis of this, our latest neobanking deep-dive report can now be accessed on the MEDICI website.
Clearly, neobank fever is spreading around the globe. This can be inferred primarily from the growth that we have witnessed in this segment in terms of increase in investments, the number of players, and customer growth.
With a view to understanding this segment even further, this report on neobanks was prepared by MEDICI as a deep-dive study that presents the pulse of underlying global currents in the challenging landscape banks compete in around the world. Read on to learn about how neobanks are emerging as the new wave of disruption with unprecedented success stories in banking in terms of geographic growth, customer acquisitions, valuations, and more. In this report, you will uncover the story of the evolution of neobanks across the world, profiles of noteworthy neobanks, business models, core technologies, and partnerships.
Access the FULL REPORT here.
Banking 4.0 – „how was the experience for you”
„So many people are coming here to Bucharest, people that I see and interact on linkedin and now I get the change to meet them in person. It was like being to the Football World Cup but this was the World Cup on linkedin in payments and open banking.”
Many more interesting quotes in the video below:
