Startup banks in the U.S. have made some impressive changes to the banking world — an end to NSF fees, access to payroll direct deposits two days early, sometimes an end to all fees and even small interest-free, short-term loans to cover overdrafts. Chime, the largest neo
bank in the U.S. offers up to $200 in overdraft without fees. Under competitive pressure from the neos, several big incumbents have, at long last, become somewhat more consumer friendly.
What the neos haven’t achieved, however, is profitability.
Simon Kucher, an international consulting firm with deep experience in financial service, has published a report on neo banks around the world. Some of the news is good — there are 10 neo banks in the U.S. with more than 6 million customers, the consultancy said. Chime is the 11th largest U.S. bank with more than 14.5 million customers — nine million use it as their primary bank. But…” Neo banks in the US lose $4 per customer on average; there are 76 challenger banks in the US and they are all unprofitable.”
A large percentage — 40 to 60% — of neo bank customers use them as their primary bank account, but many of them are younger customers who don’t generate as much revenue as baby boomers, the report added. The 2023 report follows an earlier study released in May 2022.
“A lot has changed, partly because the environment has changed,” said Christoph Stegmeier, a senior partner in Simon-Kucher’s global banking practice. “We didn’t plan to write another report so quickly, but times have changed in last 18 months, especially in inflation and the interest rate level, which have had a tremendous impact on the industry.
“When we talked to neos they all told us they needed to scale and grow to be profitable.”
Simon Kucher questions whether neo banks have properly understood cause and effect.
Or as the report said, “Neo banks have been obsessed with scale over profitability, a concept successfully applied in tech or…
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