Traditional banks take the lead: While neobanks’ troubles are mounting, traditional banks have been dedicating their time and budgets to digital transformation. We forecast that digital account openings at these banks will continue to grow.
- After seeing explosive growth (88%) in 2020, digital account openings continued to increase at a positive rate, hitting 10.2% in 2021 and offsetting the major neobank decrease at 4.1% this year.
The bigger economic and regulatory climate: The economic downturn and looming recession will cause consumers to pay extra attention to their financial health and choose to pursue relationships with financial institutions that they trust.
- As neobanks struggle to break even and sometimes even face bankruptcy or complete closure, customers will likely turn to more established institutions, like traditional banks, without fears that they will go under.
- Neobanks have also recently received more intense scrutiny from regulators for their risk management processes and their handling of things like fraud and anti-money laundering.
- But it’s not all bad news for neobanks. While most excel in the digital experience, a few have also found ways to diversify their revenue streams and pull themselves into the black—typically by offering products like loans. Digital banks that can pivot into these alternative revenue streams should make the adjustment now, before economic conditions deteriorate further.
Our take: Across the financial sector, digital accounts are here to stay. Incumbents are closing in on the formerly well-cushioned lead in digital transformation that neobanks once held. Both digital and traditional banks will need to navigate a bleak and potentially prolonged economic downturn, and our current outlook sees traditional banks in a much healthier financial position than neobanks. Rather than solely pushing for account growth, neobanks should work toward generating revenues and let new growth happen organically.
This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.