Neobanks vs Incumbents

Small businesses are facing a difficult decision, such as stick with the trusted, old-guard or make the jump to something new. It is this dilemma that, even with conservative migrations, will see Neobanks continuing their meteoric rise in the financial services industry. Readily available APIs make it easier than ever to integrate core banking features into any app experience.

Service providers from Unit to Rize enable young startups to build complex banking platforms. This reduced barrier to entry coupled with a cash-flush market has led to an overwhelming flood of digital banks. They are seeing digital banks rapidly diverge into segment-specific solutions. From digital banks built for the elderly to Nerve, the online bank for musicians, Neobanks are relying on ultra-specific audiences. They have heard the term Minimum Viable Product, but rising Neobanks are now champions of the Minimum Viable Audience.

Consumers and small businesses pick a bank and stick with the institution for an extended period often never switching to a competitor. Simply offering banking services is no longer enough to retain customers. Digital-native individuals want more from the financial institutions they entrust with their money. Neobanks are unlocking new and more effective ways to connect with their customers. These innovations are both subtle and tech-savvy. And they are targeted content strategies that inform and educate customers about how best to manage their money and investments.

The biggest pain point of opening a new bank account is proving the identity. They are all familiar with the hours-long appointment. Neobanks have found innovative ways to reduce this friction by leveraging identification software like Trulioo’s GlobalGateway. The account creation process is still where most would-be users drop off. Exciting startups like Portabl seek to address this pain point by enabling cross-device, cross-site identity verification. This future is one where traditional financial institution can’t compete as consumer-facing brands and platforms. Tech-forward banks like Evolve Bank, Cross River Bank, and others increase their total assets.

Large financial institutions will be content with serving as shadowy infrastructure-first businesses. Many larger banks will try to cultivate portfolios of various segment-specific neobanks to keep customers within their ecosystem. Goldman Sachs’ Marcus is one of the latest examples in the race to build robust fintech portfolios, albeit the platform is an in-house effort. The buzzy Fintechs have found a way to make managing finances more accessible, intuitive and fun. The convergence of Neobanks via acquisitions and portfolios are managed by traditional institutions.