There is a neobank called Revolut, which is adding 3,500 people daily to its digital bank because it provides a store for Bitcoin. It doesn’t have a banking licence yet, but that isn’t stopping customers from joining and it has around one million accounts already.
What is a neobank?
A neobank is a concept that blends online banking, mobile apps, digital lending and personal financial management. They are consumer focused, have chatbots and replicate the conventional model of savings, lending and transfers. They don’t need to have a banking licence, nor do they need them, which some may find surprising. According to futurist and Fintech entrepreneur Lex Sokolin, tech statups can build user experiences and API those into financial backends from firms providing bank-as-a-service. He also points out that is exactly what Apple and Intuit did using Green Dot’s bank-as-a-service.
Then came the cryptobanks
The neobanks have been joined by cryptobanks. These replicate the functions of the traditional bank for customers and investors with crypto assets. Sokolin believes that the neobank and cryptobanks will soon blend together. Examples of cryptobanks, which are all retail banks, include Flinu and BABB in the UK, 2gether Bank in Spain and Change Bank in Estonia.
Both the neobanks and cryptobanks have raised money thorugh ICOs. Monza, a neobank poster child, raised €71 million and the cryptobanks are set to raise $150 million this year if some industry predictions prove correct. If the trajectory follows ICO funding in general, we will see the exponential rise in financial institutions dedicated to crypto continue.
Europe is first mover
When you look at the rise of these challenger banks, one noticeable aspect becomes clear; most of them are based in Europe. In fact, the majority have their HQs in the UK. That’s where you’ll find Revolut, Monzo, Pockit, Monese, Atom, Starling Bank and Tandem. The reason that Europe seems to be hosting so many neobanks and cryptobanks, rather than the USA, which might seem the more likely home for them, is that international money transfer in Europe can be priced at nearly zero by the digital banks. This gives these challenger banks an advantage over the conventional banking community. This matter more in Europe than it does in the USA, because markups on credit card use and foreign exchange make travel expensive for Europeans. This doesn’t affect the American consumer to anywhere near the same extent, as the dollar is used throughout the USA, whereas Europe has a greater range of currencies, so neobank and cryptobank services don’t have the same appeal for Americans, who are more focused on personal financial management.
Where will they emerge next? It is likely that failing third-world economies will see a rise in the presence of cryptobanks. We have already seen in the last week in Zimbabwe, during the fall of Mugabe, that the people flocked to digital currency because the country’s currency is in such bad shape. It is not the only example of the growing adoption of cryptocurrencies in weaker economies, and we can expect to see much more movement towards crypto in the coming year, with an accompanying demand for institutions that can service customers with crypto assets.