Neobanks, digital-only banks that are not saddled by traditional banking technology and costly networks of physical branches are fast emerging in the developed world, particularly Europe and the US.
These virtual banks, akin to Mobile Money and FinTech in Africa, have been working to redefine retail banking in major markets around the world, on the back of innovation-friendly regulatory reforms in those country.
A brief about a report by Business Insider Intelligence indicate that they have gained traction in Europe over the last three years, while the US is home to some of the oldest neobanks — including Simple, which started in 2009, and Moven, founded in 2011.
It mentioned some of the strong neobanks on the US market now as Aspiration, Chime, Marcus from Goldman Sachs, N26, Revolut and Finn from JPMorgan Chase, which is a far cry, compared to the strength of the European market.
The slow offtake of neobanks in the US in attributable to two key factors – the onerous regulatory regime in that country, which has made it very difficult to obtain a banking license, and the entrenched position incumbents hold in the financial lives of US consumers.
This is not different from what happened to the mobile money and FinTech sector, when they first started in Ghana – the banks were so apprehensive that the regulator, until recently, made mobile money bank-led, instead of telco-led.
But the new law has made it telco-led, but the banks still serve as the holding institutions for the cash the float within the mobile money ecosystem.
“Navigating the tedious and costly scheme for obtaining a banking charter and appropriate approvals has been a major stumbling block for the country’s digital banking upstarts. However, developments over the past year suggest these startups are finally poised for the spotlight in the US,” the brief said.
It added that “In this report, Business Insider Intelligence maps out the factors contributing to this shifting tide, examines how key players are positioning themselves to take advantage, and explores how incumbents can embark on their own digital transformations to avoid disruption.”
Here are some of the key takeaways from the report:
- Despite lagging behind Europe, recent developments suggest that neobanks are finally ready for the spotlight in the US.
- Three distinct influences are responsible for creating the fertile ground for this evolution: regulation, shifting consumer attitudes, and the activity of incumbent banks.
- Among those driving this evolution in the US are foreign neobanks including Germany’s N26 and UK-based Revolut.
- Meanwhile, two notable incumbent-owned outfits have deployed amid great fanfare: Marcus by Goldman Sachs and Finn by Chase.
- In this increasingly competitive landscape, incumbent banks have a range of strategic options at their disposal, including overhauling their entire business for the digital era.
In full, the report:
- Details the factors contributing to a shift in the US’ neobank market.
- Explains the different operating models neobanks in the US are deploying to roll out their services and meet consumer demands.
- Highlights how incumbent banks are tapping into the advantages offered by stand-alone digital outfits.
- Discusses the key strategies established players need to deploy to remain relevant in the US’ increasingly digital banking landscape.
About some of the top neobanks in Europe
Currently, six out of ten of the most successful online banks come from the EU. Their total customer base exceeded 13 million, and the companies themselves were able to attract more than $2 billion of investments. Most of them simply explain their achievements – avoiding copying the standard banking model and moving financial services to a whole new level.
Of course, challenger banks as a business model are not always and not everywhere a lucrative undertaking. But the next 5 neobanks showed the viability of the direction and set a new trend in the fintech industry.
European Internet Bank with its head office in Berlin, which provides its services in the EU, UK, and USA. One of the oldest neobanks which is on the market for about seven years.
N26 provides many services: servicing a current account, issuing bank cards, opening deposits, servicing overdrafts, and transferring funds. In addition to this, with the help of services from the bank’s partners, right in the application, you can draw up an investment agreement on the European securities market, conclude an insurance agreement or open a credit line. The bank was the first in Europe to offer users Mastercard metal cards.
Monzo set the record when it managed to raise £1m under 2 minutes, using the Crowdcube investment platform. The application includes functions designed to accompany financial activities, such as splitting accounts, instant transactions to other Monzo accounts, support and chat in the application.
Monzo is one of the best neobanks in the UK not only because of its convenient mobile version but also because of its flexibility. An individual who is over 16 can open an account.
London neobank Revolut is considered to be one of the most popular entities in the digital banking sector. The company is equally proliferating in Europe as well as in the Americas and the Asia-Pacific region.
Revolut managed to attract more than 5 million customers in just four years and has garnered $344 million in private investment. And this is far from the limit, as the startup is preparing for an inflow of capital of $500 million.
The main features of a Revolut account are push notifications, expense categories, and recurring payments.
Atom Bank is the first bank in the UK created for smartphones and tablets without any branches. Also, one of the first banks offering biometric security – customers can enter the system using face recognition, voice or fingerprints.
Atom has recently announced that it would transfer its application from third-party data centers to Google Cloud in order to offer new services. In December 2019, Atom launched a total update of its application. It was based on customer feedback, hence making it more intuitive.
A British company that is famous for offering current accounts and money transfer services as a replacement for traditional banks. The service called ‘mobile-only’ provides accounts in pounds sterling, euros and Romanian lei. It is available in 31 countries. As of February, it has more than 2 million customers. It is a very interesting fact that at Monese if you are a member of the European Union, you can register an account without indicating their address or credit report.