Neobanks continuing to grow market share
Neobanks are growing in popularity and disrupting primary banking relationships, according to a global analysis from Simon-Kucher.
The pricing consultancy’s report – “Neobanking: Beyond Disruption” – examines how digital-first banks are reshaping retail banking across global markets.
Neobanks exclusively use online banking and eschew physical branches to lower their operational costs – and in turn usually offer lower fees and higher interest rates. They also typically do not have their own banking licenses and rely on partner banks.
Simon-Kucher says that neobanks have added approximately 300 million customers in the last two years across global markets. These challenger banks – the largest of which include Nubank (Brazil), Revolut (UK), and Chime (US) – are expanding revenues and customers at a pace that incumbents struggle to match.
“Neobanks are no longer a niche option for tech-savvy early adopters,” said Christoph Stegmeier, senior partner in the financial services practice at Simon-Kucher. “They now compete head-to-head with incumbents on customer acquisition, satisfaction, engagement, and relevance.”
The report identified several trends in the current neobank landscape. First, neobanks are eroding the single-bank model, with 72% of consumers having two or more providers. The cohort of 18-29 year-olds are the fastest adopters, with neobanks being a popular choice for higher engagement categories such as cryptocurrency and investing.
Neobanks have higher customer satisfaction, at 52% compared to 49% for large and national banks. People are switching to neobanks primarily for incentives such as fee-free checking and higher savings rates.
Meanwhile, regional banks are losing relevance among new clients and lagging in customer satisfaction.
Although neobanks are growing, they still trail traditional banks in trust, perceived security, and range of services. Neobanks account for only 5% of global retail banking revenues, with $70 to $80 in annual revenue per customer.
In North America, neobanks are growing steadily (representing 40% of new accounts), but consumers’ threshold for switching primary banks is high. North American consumers require the highest financial incentive globally to switch primary banks, at above $300 per month in perceived benefits.
