Neobanks are what traditional banks would be if they were recreated in the 21st centurySt century. Usually without a brick and mortar foundation, or something as expensive as local branches and a central head office, they overcome this physical deficiency by using highly developed technology and apps to deliver everything most customers want from a bank (usually with the exception of personal interaction with meat). -and-blood bankers) through technical solutions that can be accessed from computer screens, or more often from smartphone apps.
What one must understand about that is that neobanking is not a one-nation phenomenon. They are popping up all over the world, with some countries stealing an edge over others due to the maturity of their neobanking infrastructure – and also a pro-neobanking regulatory structure. So there is no single “state of play” for neobanks in 2022, there are national or continental states that will vary widely. However, it is possible to take a look at these broad conditions and merge them into one idea of how neobanks as a whole are developing and performing worldwide.
It is also worth saying before we dive deep into the national and international details that neobanks are a constantly evolving animal. Some continue as they started, with limited banking licenses that (crucial for SMEs and corporates) do not allow customers to use their deposits to generate profit, limiting the use of money in neobanks. Others, which started out in limited ways, have applied for full banking licences, opening them up to a much wider range of uses, without losing their technology-driven USP.
So it is fair to say that, despite an uneven international regulatory landscape, the fundamental state of neobanks in 2022 is: evolving or in transition.
The American image of Neobanks
The thing about a phenomenon in evolutionary flux or transition is that the same data about it can be interpreted in a number of ways.
For example, Forbes admits that the top 10 neobanks in the US had a particularly strong year in 2021, with growth of a total of 10 million accounts, up to 33.5 million accounts in total. But it also warns of dangerous inefficiencies in the US neo-banking sector, with Dave (one of the top ten) claiming it was hampered in its investment hopes in late 2021 by capital constraints. MoneyLion, another on the top ten list, is currently burning through cash, leading to a growing sense of investor caution about its prospects looking out over the next handful of years.
Varo Bank too may encounter serious – and even potentially fatal – cash flow problems by the end of 2022, because although neobanks do not have a structured branch system, their relentless growth still requires an increasing staff and marketing budget, which grows to act as a drag anchor at some of the fastest developing neobanks in the sector. Even Chime, the leading neobank in the US market, has delayed its IPO due to a decline in fintech stock valuation in the first half of 2022.
So, despite the positivity of 2021, there is some doom going on about the US neobank scene in 2022. Whether the reality will see some of the first wave of top neobanks develop or die, while the principle of neobanking evolves, with other players who will come up to fill the gaps and avoid the pitfalls remains to be seen. Some, like Forbes, are already predicting the “end of the neobank era” as backlash from both traditional banks and megafintechs like Paypal and Square Cash put pressure on the neobank model that can’t perform hardcore traditional banking jobs like lending, profit-generating, etc.
Although neobanking is in a period of evolutionary change, the change in the US market feels particularly turbulent as we enter the second half of 2022 – keep an eye on these stock ratings to see which way the wind is blowing for the future. American new banking.
Neobanks in Europe and the UK
It has become necessary to treat Europe and the UK as separate entities thanks to Brexit, but in the neobanking sector it would make sense anyway, because the UK has a disproportionate number of players in neobanking. The UK’s Open Banking Initiative has also actively encouraged the development of fintech to challenge traditional banking culture and practices, giving neobanks there a leg up compared to some other nations.
Certainly, the complexities of an ongoing, rather than a completed Brexit, an inflationary spiral unlike anything seen in four decades, and the aftermath of the Covid pandemic, which saw the UK go into lockdown after lockdown – promoting as much online activity as possible on expense of brick-and-mortar branches, may make the UK an uncertain investment prospect in many respects, but in neo-banking the island nation appears to be relatively prosperous.
Across northern continental Europe, it’s a similar – albeit less doomy – picture to what you’d find in the US. There has been tremendous growth in neobanking since the start of the pandemic, both in terms of startups and account capture, but there are warnings of a coming pushback from large traditional banks, which are adding their own app-first services to an infrastructure that also everything else that neobanks don’t – mortgages, highly efficient commercial banking etc. There is also the same concern that neobanks, after securing huge initial account usage, struggle to convert accounts into revenue streams.
So in continental Europe there is more optimism, but an awareness that securing accounts does not necessarily guarantee the viable future of neobanks. Britain, meanwhile, is busy with a bonfire of its historic banking vanities, and could therefore benefit from a wider growth of the neo-banking ecosystem.
Neobanks in the Asia-Pacific region
The APAC region is currently much more optimistic overall than many Western nations about the development of neobanks over the next five years. Mordor Intelligence, for example, sees a 6% growth in the use of neobanks in the region between 2022 and 2027. It also estimates that 63% of banking customers in the APAC region are likely to use neobanks as soon as 2025. This analysis highlights tech- forward and early-adopter worldview of the region, but does not yet take into account the problems implied in the West, such as the question of turning the first use into ongoing income and revenue streams.
Neobanks in Canada
It is also worth taking a look at the Canadian situation. Neobanking there has been slower to develop and evolve than in some other regions. But with news in May 2022 that Neo Financial has raised a $185 million CAD fund and raised one million accounts, as part of over $1 billion raised in the past year by Canadian neobanks, it’s looking increasingly likely out that there will be a shift in banking regulations across Canada, in favor of the challenger banks.
Whether that will amount to something like the UK’s Open Banking Initiative has yet to be seen, but Canada appears to be at an earlier stage of neo-banking development than the US or northern Europe, strengthening its position for growth, rather than – for now – stirring traditional banks to pushback.
Neobanks: A Picture In Trends
From all available data, the state of neobanks in 2022 depends on where you stand, and where on the rollercoaster of neobank development you are.
In the US and continental Europe, there is some potential for continued development and evolution out of “startup mode” for neobanks. The more traditional banking services they evolve to offer, without the hassle and expense of a local branch network, the more likely they are to develop into a sustainable prospect – but there is currently a backlash from traditional banks brewing, and revenue streams turns out. increasingly difficult to find.
In the APAC region, traditionally early and rapid adopters of the most technology-friendly approaches to life and its problems, there is obvious optimism for the ongoing growth of neobanks over the next five years. It takes into account the tech-savvy element of the regional culture, but also doesn’t actively anticipate problems with revenue streams or any pushback from traditional banks.
And in regions like the UK and Canada, it looks increasingly likely that changes in banking regulations will help neobanks diversify more easily, with less pushback from the traditional banking sector. The key problem of developing revenue streams from the neobank model remains, but the more services the neobanks are able to offer, the more likely they will thrive.
