- Bank account opening is surging back after a slump during the pandemic, and consumers are focused on digital.
- Insider Intelligence forecasts that the number of US neobank account holders will grow 46.4% between 2022 and 2026.
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In 2022, neobank investors shifted focus from growth at all costs to profitability. Most of the world’s 291 neobanks were not able to turn a profit—and investors are losing patience. With the funding route unlikely to abate, 2023 is shaping up to be a do-or-die year.
Industry pundits are already speculating whether neobanks can pivot quickly enough to survive. They’ll need to align their marketing strategy, products, policies, and customer support activities to drive profitable growth—while also bracing for regulation. Successful neobanks will emerge from the ashes leaner, stronger, and more efficient.
But first, what exactly are neobanks, and how are they disrupting the financial services industry?
What are neobanks?
Neobanks, or digital-only banks, aren’t saddled by traditional banking technology and costly networks of physical branches. Instead, all of their banking services are conducted completely online via desktop or mobile app. There are two types of these standalone digital banks: a full-stack neobank or a front-end focused neobank.
A full-stack neobank is a standalone bank with its own banking license and can operate completely independently. Comparatively, a front-end focused neobank does not have its own banking license and must operate in partnership with either a traditional or legacy bank to provide its services to customers.
Neobanks vs Traditional Banks
The primary difference between neobanks and traditional banks is that neobanks are entirely digital without any physical branch locations whatsoever—they’re accessed via a computer, tablet, or smartphone. To remain competitive, traditional banks may leverage the technology from neobanks so their consumers can benefit from digital offerings.
Consumers’ growing frustration with legacy banking service providers stems from their core legacy technology and high costs. These downfalls combined with increased appetite for digital solutions, has accelerated the shift to digital-only banking. Increased consumer interest in swapping out cash and credit cards for financial service mobile apps is stimulating competition globally, which has driven neobanks to roll out extravagant features, like overdraft protection and sign-up incentives.
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Top Neobanks in the US
These are the top four US digital-only banks, by market account holders, according to Insider Intelligence forecasts for 2023:
- Chime (21.6 million)
- Varo (5.4 million)
- Current (4.6 million)
- Aspiration (4.5 million)
Top Neobanks in the UK
These are the top four digital-only banks, by account holders, according to Insider Intelligence forecasts for 2023:
- Monzo (6.6 million)
- Revolut (4.1 million)
- Starling (2.2 million)
- Monese (1.6 million)
Neobank industry growth
The pandemic fueled massive growth in digital-only bank account opening. But as account opening demand has swung back toward 2019 levels, rates will settle into single-digit growth through 2026.
In pre-pandemic 2019, just over 1 in every 20 US adults had digital-only bank accounts. From 2020 to 2021, digital account opening rates kicked into overdrive, as lockdowns eliminated in-person account openings and neobanks enticed new customers with incentives like early access to pandemic stimulus checks. By the end of 2021, 15.4 million adults had opened bank accounts digitally—an increase of nearly 66% over 2019.
Looking ahead, growth has plummeted, and digital account opening rates in 2022 are now slightly below those of 2019. Neobanks are a key factor. After pumping up overall account opening rates, neobanks’ marketing budgets dried up and incentives for new customers disappeared, causing a slowdown in account opening rates. Expect low growth ahead—the CAGR of new account openings from 2022 to 2026 will be under 1%.