Major trends in Neobanking at beginning of 2021:
- The global neobank market 2020: From 100 to 300 neobanks in 3 years (2017 to 2020). Makes a new neobank every week.
- US-based neobank Chime tops the global valuation list with a price-tag of $14.5bn, while Brazil’s Nubank tops the leaderboard for the most customers, claiming to have 30m users.
- 2021 will potentially be the first neobank IPO year, starting with South Corea’s Kakao Bank that has attracted $2.5bn in investment to date.
“The High Street has been replaced by Amazon. The analogy is, what’s happened in banking is that the High Street banks have been replaced by the digital banks.”Anne Boden, CEO of Starling Bank, December 2020
What is a neobank or challenger bank?
Other terms: digital bank, digital-only bank, online bank, internet-only bank or virtual bank
- a challenger bank has a banking license whereas neobanks haven’t
- type of direct bank that operates exclusively online without traditional physical branch networks
- digital startup challengers that deliver banking products outside the traditional system
- neobanks focus on great customer experience with easy onboarding processes (KYC), comprehensive account and transactions views, mobile payment and budgeting tools. They often aggregate different third-party services via APIs into one seamlessly integrated front-end
- Not all so-called neobanks have a full banking licence. In Western countries, there are three stages of these new competitors:
How do challenger banks earn money?
- they earn the interchange of card transactions (about 0.2% of the value of a transaction)
- they sell premium services
First digital banks to vanish from the market again
Simple – the first U.S. neobank ever (mother of neobanking), founded in 2009 in New York, launched in July 2012 with 200’000 customers, and then acquired by BBVA USA in 2014 for US$117 million (accoring to different sources: with about 97’500 customers –> at a price of about US$1200 per customer; or with about 33’000 customers –> at a price of about US$ per US$3500 per customer).
During the three years after the acquisition, BBVA wrote down $89.5m for Simple, about 75% of its original acquisition price.
In January 2021, BBVA has informed its customers that Simple will be ceasing operations in 2021; the accounts will be transitioned to BBVA USA. This strategic decision was made as a result of the merger between BBVA USA and PNC Financial Services Group. The PNC has agreed to buy BBVA USA for US$11.6 billion with about 2.9M customers (estimation) (at a price of about US$ 4000 per customer). This comparison shows shows – depending on which source you rely – BBVA could multiply the value per customer than three times within the last 7 years or merely got the price per customer that BBVA paid in 2014.
Nubank Co-Founder Cristina Junqueira said the health crisis encouraged many Brazilians to jump into online banking for the first time, particularly to receive government stimulus payments.
2021 – the year of consolidation in neobanking? Year of starting profitability?
Will 2021 be the year of consolidation in neobanking? After 5 – 6 years of explosive emergence of a new sector with a multitude of new competitors, consolidation sets in.
December 2020 – Nubank is poised to turn a profit, as is India’s Paytm, due to the pandemic-fueled demand for digital banking services.
Financial comparison of Monzo vs. Atom (February 2021)
Major challenger banks start to focus on profitability (January 2021)
Challenger banks for SME
Impact for Swiss Banking due to challenger banks
Reflections on the Future of Swiss Banking (Daniel Fasnacht, April 2020)