The next generation of banking is in supercharged growth mode. Companies are seeing adoption at alarming rates and capital is flying at startups under the banner of Neo-Banks.
This movement is occurring due to a lack of innovation and customer experience from the traditional banking sector. Part of this is a result of the regulatory changes that have occurred in the last 10 years but the other seems to be either bureaucratic friction combine with a detachment from what people really want. We’re written about how impressed people are with their banking apps before.
People are getting smarter and are wanting more from their banking. Thats not just pretty interfaces and friendly local customer support. People want more features, more products, and don’t want to pay high premiums for it. Why should they spend their valuable time comparing interest rates and services offered by huge corporations with massive overheads when Silicon Valley start ups will deliver it to their phone packaged in an intuitive interface?
Enter the Neo-Banks
In its simplest form a Neo-Bank is a bank without branches; a digital bank. The movement has been led by fin-tech companies like Monzo in the UK, Simple in America, WeBank in China and Fidor in Germany. These forward thinking tech companies saw what everyone else was seeing and did something about it. Banks are stagnant, slow and expensive. Not to mention cumbersome; try sending money to someone in another country through your bank. Then try a service like TransferWise or Bitcoin and compare the efficiency, cost and experience of them. Night and day difference.
Image Source: FintechRanking.com
This is just one example of the dated nature of banking in a world that is continually moving towards digital. Traditional banks charged customers $34.3 Billion in overdraft fees in 2017 alone. A 3% increase on the previous year and more than the fees from 2009 post GFC.
In contrast, Chime, a San Fransisco based company has no monthly fees, no minimum balance fees, no overdraft fees, no international transactions fees, and it has a network of nearly 40,000 free ATMs.
How is that even competition…? Thats murder.
Chime is murdering banks.
And they’re not alone
There are multiple companies who are taking to the high cost retail banks. WhatsApp has been beta testing its payments platform in Indian with roughly 1 Million people. (Biggest beta test of all time contender…?) Kakao Bank launched in Korea July of 2017 and had 2 million banking clients within 2 weeks. Revolut and Monzo have both recently been granted access to the exclusive unicorn club through successful raises at $1 Billion+ valuations.
When you start to connect the dots what this all means is that the tech companies, the venture capitalists and even the people are all jumping ship from traditional banking in exchange for the blue waters and calmer seas of Neo-Banks and fintech platforms. Giants like Black Rock (NYSE:BLK) and JP Morgan (NYSE:JPM) are making moves by investing in new fin-tech platforms. Acorns got a $50 Million dollar tick of approval from Black Rock back in May and JPMorgan Chase & Co. increased its position in Mogo by 225% during the 3rd quarter of 2018.
It’s not just about savings accounts
Banking is more than just checking and savings accounts. There’s lending, there’s credit cards, mortgages, investment, financial advise, superannuation, retirement funds; all these different products which are funnelled to the end user through the banks. So where are these companies likely to go with their product innovation?; financial services.
Mogo (NASDAQ:MOGO), a Vancouver based fin-tech company has already begun progressing from their legacy business of pay day loans and moving towards other areas of the sector. MogoCard has a new cashback feature, similar to the cash back credit card offered by most banks however Mogo offers this service on debit cards. Another new addition to their lineup is MogoWealth, is bringing best-in class services to investment and other financial products.
What the internet did to retail shopping, to video rental, to book stores; it is now doing to banking. The best and most ambitious entrepreneurs are using all the tools available in the age of technology to uproot the one of the most entrenched and stagnant industry there is; money.
Disclaimer: Mogo is a paid client of High Energy Trading, click here to read full disclosure.
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