Smart banks survive the pandemic and challenge the old institutes


Smart banks survive the pandemic and challenge the old institutes

Mercury, N26, Monzo, Nubank, Revolut. They are the way to the banishment of Gen Z. But their rise favors the innovation of their own competitors: traditional banks.

“What do you think we are? A bank?"playfully, but not too much, recites a current Billboard in the NE metropolitana Current is just one of hundreds of neo-banks that have been born in the last ten years in the four corners of the planet. Startups that, taking advantage of technological innovation, FinTech, challenge traditional banks by offering customers similar services and products, but simpler to use and often with reduced costs. All on the Internet. Until 2020, with Covid, they were the disruptive phenomenon of the moment in banking. The lockdon and the shutdown of consumption and trade, surprisingly, had affected them more than traditional banks, putting their run in crisis. But in 2021, the resurrection: now Monzo, N26, Nubank, Revolut and compagnia bella run like never before. Or at least in terms of market value. The incumbent institutions, however, those of the ‘good and old’ branch, did not stand by.

Since the beginning of ten years they have arrived on the market they are disrupting the traditional banking landscape. In 2019, says an analysis by Eton One every five days. Their offerings are focused on individual customers, small and medium-sized businesses, through a multiplicity of digital tools made available to them: remittances, money transfers, utility payments, personal finance management apps. All online. All with one click. They are banks, but without counters. They 'attack' a specific segment of banking customers, first loyal to traditional institutions – physical ones – through more convenient and customized offers and products. And, thanks to technology, easier to use.

Customers of good and old branches, but not only. Because neo-banks represent the gateway into the financial system for Generation Z, the age group, as we have already seen on the pages of this newspaper, less bankrupted. The so-called Zoomers, born after 1995, are the first not to be interested in opening old-fashioned bank positions. What they are looking for are hyper-customized solutions. One, at most two services. And not the full package. It is easy, therefore, to understand why in recent years these banks in startup version – neo-banks, in fact – have had an easy game in winning new customers. The incumbents-the traditional banks-had not yet embraced the novelties of the digital revolution.

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Neo-banks and their problems

The problem with neo-banks, however, is that they have focused only on acquiring new customers, without focusing on the sustainability of their business. Without achieving, as often happens to startups in the first years of activity, the profitability necessary to guarantee its existence. When the pandemic hit the world economy like a hurricane in 2020, many expected a definitive consecration of neo-banking. With people forced home, more and more digitized, it seemed like a fate already written. But things turned out differently. As the analysis by Etonton Consulting shows, the new actors were not prepared to face prolonged adverse scenarios.

For example, N26 failed to obtain unemployment benefits in Spain. French and German neo-banks were excluded from the distribution of government support funds. Monzo has struggled to respond efficiently to the need for large loan provisions. True: the pandemic has fostered digitalization in all sectors, including banking. Thus helping actors who by their nature were born 'remotely'. However, as the Financial Times recently pointed out, the decision by governments and central banks to inject a robust dose of liquidity into traditional banks, to support businesses and households, has turned the pandemic into a boomerang for challengers. Thus, the crisis has mainly affected the latter.


In June 2020, the valuation of Britain's Monzo, which had made phosphorescent credit cards its great workhorse, plummeted from $ 2.6 billion to $ 1.6 billion in one fell swoop. It was forced, among other things, to lay off 120 employees. A considerable share of staff for a digital company. Similar problems for the German N26, which in the first months of the pandemic has recorded revenues of 50 million dollars, but in the face of operating losses of almost 90. The problem, for neo-banks, is that for too many years they have based their investors ' bets only on acquiring new customers. But without paying attention to the construction of a sustainable business model in the long term.

Nubank and others

A few months pass, and along with the recovery of the global economy and consumption comes the twist. The neo-bank crisis of 2020 turns into Resurrection in 2021. Their race has restarted:

Brazilian giant Nubank, after its latest IPO, raised $ 2.6 billion and reached a valuation of about $ 41 billion. The same music for the other big player in this market, the British Revolut, which last summer raised almost a billion bringing its valuation to 33 billion dollars. N26, after the last round of investments, reached a market value of about 9 billion. The other Great British pla pla A growth of 200% after the retreat of the year before. And the speech does not change if we review the golden year of the other challenger banks: the American Chime flies to 25 billion. Starling raised 322 million pounds in the spring. The French LD And the list is still long. According to research by Kpmg, the size of this market will reach $ 333 billion by 2026, with an average growth of 47% each year.

Death and resurrection of the neo-banks, we said. But the roller coaster is not over. In recent months, in fact, hand in hand with the return to growth, anti-money laundering investigations have touched some of the most important pla pla The German N26, which can now count on seven million customers spread across more than twenty countries, in May 2021 was joined by a decision by the Berlin regulatory authority in the Financial Field. In fact, BaFin has appointed a special supervisor, an external firm, to monitor the efforts made by the German FinTech on the antimone La

The sensational anti-money laundering investigations show that these actors are still in a consolidation phase. Indeed, according to some observers, in reality the neo-banks 'make a lot of smoke, but little roast'. For the simple reason that in reality, the digitization of the traditional banking system – also favored by the advent of the neo-banks themselves – is now a sure fact. Indeed, the banking giants have by their nature more volume and capital, at least on paper, to reap the benefits of the FinTech revolution. Especially when a virtuous coopetition is triggered.

One day, when even incumbents will offer hypercustomized services designed for the individual and no longer for a group of users or even a generation, it will become difficult to distinguish incumbents and challengers in the banking sector. At that point it will be seen, as etonton Consulting points out, which neo-banks will have reached the ‘age of majority’ and can begin to walk on their feet, better monetizing their services.

Michael Zippo

Sources: Financial Times, HuffPost

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