After a plethora of mega-deals in 2018H2, the market appetite for the European new bank in 2019H1 became flawed. In the meantime, the neo-banks have retreated to the ground to survive, grow and expand. Throughout the value chain, we have identified some important trends in the market, in customers, products and in regulation in the industry.
The central theses
- Established Neobanks expand over seven seas
- Newcomers rely on niche offer
Established Neobanks expand over seven seas (1/2)
Bigger and bluer
Established European Neobanks extend to the "blue oceans" (eg Australia, where neo-bank penetration is low), to neighboring countries (in the case of European expansion) or to the larger markets (eg USA) , Examples:
- British Revoluto launched in Austrilia
- German N26 and British Monzo in USA
- British Monese launched in France
- French Aggregator Budget Insight launched in Belgium
- French Bankin was launched in the UK, Spain and Germany
- French Linxo launched in Germany
- French Qonto starts in Germany
New entrants rely on niche offer (2/2)
Competition is intensifying, differentiation is the key
A niche strategy creates new market participants. Examples:
- French startups neobanks Xaalys and Pixpay target teenage banking
- Shine or Penta offer banking solutions for SMEs and freelancers
- Established neobanks rely on a more diverse user base
- New user acquisition model: Online-to-Offline (O2O)
Established neo-banks rely on a more diverse user base (1/2)
Millennials are cool, but we still need Average Joe
Neobanks attracted mainly technically savvy millennials (eg Monzo About one third of Monzo's 2 million customers live in London, and less than 5 percent are over 60 years old.), that's just a tiny part of the population. To further evangelize the neo-banks, a broader and more diverse user base is desired. Two types of new customers are at the forefront: the "average Joe" and the laggard.
- Joe's average: Neobanks targets more elderly people who live in the countryside, are less tech-savvy, and prefer outlets and human activities.
- The survivors: A wave of loss-making branches of retail banks (eg in remote or uninhabited areas) will be shut down to save costs, and the affected customers will be astonished: physical agencies are no longer possible, but the online service is still not there. Neobanks seize the opportunity to win the bereaved.
- Revolut has rewritten the customer contract and reduced the millennial jargon to make it easier to understand for "Average Joe".
New user acquisition model (O2O) (2/2)
When pure online banks are not just online anymore
- Neobanks were once referred to as pure online banks. Now the wind of change is blowing to accommodate new types of customers: various neo-banks have now introduced stationary distribution channels to enable "Average Joe's". The O2O customer acquisition strategy is gaining in popularity.
- Several neo-tanks have now set up stationary distribution channels to establish an O2O distribution.
- Monzo works with PayPoint, a payment service that is offered in approximately 30,000 stores across the UK.
- Starling works with the post office.
- Compte Nickel has launched an online survey that allows users to decide where to access the outlets.
- Race for immediate payment
- Diversification of offers
Race for Instant Payment (1/2)
Who is the coolest kid in town?
At the end of 2018 / beginning of 2019, the immediate payment suddenly became big. Both the neo-banks and the established banks are in a hurry and for the first time the established banks are not losing against the new banks! For example, BNP, Societe Generale, proposed an immediate repayment in November 2018. This may reflect a growing awareness and a growing drive for innovation by incumbent operators.
There are 2 methods used:
- Third-party solution, such as Google Pay / Apple Pay
So far, almost all neobanks have integrated Apple Pay
Example: Monese has started Monese-Monese Instant Pay. 5 French banks started the service together with Paylib
Variety of offers (2/2)
Neobanks used to be pure players who promised uncomplicated service; H. Focused on only one financial product, such as debit card, lending and bank transfer. Now we are seeing a diversification of offerings to better serve and retain customers and generate additional revenue.
- The German N26 proposes credit now. Savings and investment products.
- The Dutch checking account neobank Bunq has a new offer in Travel Card.
- The French bank aggregator Linxo is expanding for payment.
- The French payment giant Lydia now has loan offers.
- Accumulate regulatory risks
Accumulate regulatory risks (1/1)
What the traditional banks cost now costs neobanks
KYC, compliance, cryptomoney issues, differences between local and foreign regulations … There are regulatory risks in the industry.
- N26 charged by German regulators for insufficient KYC
- Revolut challenged by Luxemberger regulators
- Compte Nickel requested by the local consumer association to comply with the reimbursement period
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