Can neobanks’ popularity outlast the pandemic?

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Can neobanks’ popularity outlast the pandemic?
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The underlying drivers of the neobank boom are long-­standing. Many customers have been poorly served by the financial system, if not shut out altogether.

As the advert suggests, most neobanks are not technically banks. They offer debit cards and online banking services through snazzy apps. But instead of obtaining a banking charter, which is onerous, costly and time-consuming, they often negotiate partnerships with small regional lenders, which hold and insure customers’ deposits.

The pandemic partly explains neobanks’ success. Lockdowns nudged customers to open online bank accounts from home. That neobanks cashed stimulus cheques swiftly probably also helped. According to Apptopia, a data provider, the number of monthly active users of neobank apps doubled between July 2019 and June 2021, while those of traditional banking apps shrank a little. Top neobanks boasted nearly 20m downloads in the first half of this year alone.

Optimists say incumbent banks will struggle to compete with neobanks, given the difficulty of modernising technology and customer service, and the risk of cannibalising their fee-based business. Banks’ shareholders may also be less keen on innovation than venture capitalists, says Scott Galloway of New York University.

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