Welcome back to the Protocol Power Index, a ranking of the most powerful companies by tech industry subsector, as well as the companies best positioned to challenge them. This time: neobanks.
By just about every measure, neobanks are booming. In the leaderboard below, the company that grew its valuation the slowest over the course of the past year still grew by 52%. The company that upped its headcount the least still grew its workforce by 10%. And four companies have raised more than $1 billion over the years, including two that managed that feat in a single round.
Neobanks sprouted up en masse in the mid-2010s as alternatives to the traditional banking system, and in some regards, they followed the same pattern as many post-financial crisis fintechs. Targeting traditional pain points — high overdraft fees, long account-opening wait times, dismal interest rates — the new wave of neobanks attracted customers with the promise that digital services would beat the brick-and-mortar approach. Massive rounds and soaring valuations were, at first, built on the lower overheads derived from neobanks piggybacking on the regulatory infrastructure in place at traditional banks.
As the market has matured, the number of strategies driving further growth has exploded. Varo Bank landed a bank charter. Nubank and Revolut took advantage of local regulatory environments to build powerhouses in Latin America and Europe, respectively. Companies like Greenlight and Current targeted underserved markets.
Still, the neobank market is at yet another inflection point as traditional banks and fintechs alike race to layer services — including banking — into super apps that could disrupt the neobank disruptors. Meanwhile, the now-established neobanks are beginning to make their moves to the public markets, peeling back the curtains on the long-term viability of the neobank model.
You’ll notice we haven’t included big banks going digital, like Goldman Sachs with its Marcus account, or fintechs that are diversifying, such as SoFi, because it’s not possible to pick apart how they compare with the neobanks that began as pure plays. In a year or so, as more and more fintechs become one-stop shops, the likes of SoFi and PayPal could end up in the same Index, but as of now the strategies are still nascent enough that we’re separating neobanks from investing services and consumer lending companies.
So, before all that unfolds in the coming months, who has control of the market now? And who is poised to take advantage of all the change that’s coming this space’s way?
|Power Score: 62.04||Momentum Score: 78.82 (1)||HQ: São Paulo, Brazil||CEO: David Vélez||Founded: 2013|
Brazil-based Nubank stands above the competition due to its size and momentum. As of Q3 2021, the company accrued 48.1 million customers across Brazil, Mexico and Colombia. That’s even more impressive when you consider it had just 3.7 million customers at the start of 2018. The company is set to go public on a U.S. stock exchange soon, providing clarity to investors and the public about the viability of the neobank business model when it does. The company went public in December, just days after this Power Index published. After downgrading its initial IPO pricing, Nubank successfully raised $2.6 billion in its IPO, lifting the neobank's market value to $44 billion (note that the ranking is based on data from before the IPO). But will the competition attempt to wrestle some of its South American market share away from it?
|Power Score: 59.14||Momentum Score: 63.53 (3)||HQ: London, U.K.||CEO: Nikolay Storonsky||Founded: 2015|
Revolut is the U.K.’s most valuable private tech company, having raised $800 million at a $33 billion valuation in July 2021. It has 16 million customers, which puts it ahead of several of the other most valuable neobanks, including Chime and N26. One reason for Revolut’s edge is its diversity of product offerings: It’s a neobank, but it also offers cryptocurrency trading, stock trading, international money transfers and consumer-to-consumer payments. This carries through to its consumer messaging, which emphasizes Revolut’s range of products (“One app, all things money”) rather than specific banking services. But its route to global expansion means facing up to some intimidating — and unlikely — rivals.
|Power Score: 52.89||Momentum Score: 54.12 (7)||HQ: San Francisco, CA||CEO: Chris Britt||Founded: 2013|
Chime is the largest neobank in the U.S. by account holders, according to eMarketer estimates from May 2021, when some 13.1 million U.S. residents held accounts with it. That was more than triple the number of U.S. accounts held by the next-closest competitor, Current. Chime is reportedly positioning itself for an IPO in the first half of 2022, sources familiar with the matter told The Wall Street Journal, and Chime CEO Chris Britt told Reuters in a March 2021 interview that Chime has “every intention of being a large, independent public company.” Can it use its deep U.S. market penetration to move ahead of foreign challengers?
|Power Score: 49.11||Momentum Score: 43.53 (8)||HQ: Berlin, Germany||CEO: Valentin Stalf||Founded: 2013|
|Power Score: 41.06||Momentum Score: 42.35 (9)||HQ: London, U.K.||CEO: TS Anil||Founded: 2015|
As the largest neobank in the U.K. by number of accounts, Monzo has remained a power player in the market despite a tumultuous year that included the ripple effects of a down round and its co-founder, Tom Blomfield, departing the company completely in January 2021 after transitioning from CEO to president in May 2020. But over the course of 2020, CEO TS Anil has managed to right the ship and is rumored to be raising an additional $400 million that would put the company back on its high-growth trajectory. On top of that, Anil said the company’s revenues are now 30% higher than pre-pandemic levels. An open question: How successful will it be in the U.S. now that it has given up on obtaining a bank charter?
|Power Score: 40.63||Momentum Score: 25.88 (10)||HQ: London, U.K.||CEO: Anne Boden||Founded: 2014|
Another U.K.-based neobank, Starling predates Monzo, though the two companies have some shared history and former personnel. But Starling has established itself as a formidable challenger in the neobanking space, with a 600% revenue increase in the 16 months ending March 2021 (Starling recently changed its fiscal calendar) to show for it. The company remains on the smaller end of the neobanks spectrum, though its more than 2.5 million customer accounts are hardly scraps. While Starling is still rooted in its core consumer banking product, the company noted that its lending and business banking forays have been particularly important to the business’s trajectory. In recent earnings calls and interviews, CEO Anne Boden has noted that the company is on track for profitability in 2022 and that an IPO could be on the table in the next year or two.
|Power Score: 38.97||Momentum Score: 75.29 (2)||HQ: New York, NY||CEO: Stuart Sopp||Founded: 2015|
Like most things considered “cool” these days, Current began with a focus on teenagers, as a debit card that helped parents manage kids’ spending. And while it still offers banking features geared toward younger spenders, the company became a bit more like Facebook a few years ago in that parents are now using it too. It’s a strategy that’s paid off: Current now has more than 3 million users, double that of Step, another neobank that’s targeting teens. While Current’s transformed into a more typical neobank, its plans for the future still hint at a focus on differentiation. In 2021, CEO Stuart Sopp laid out a crypto roadmap for the company with the hopes Current investor Andreessen Horowitz could help shepherd the necessary technology into the platform. Just as the company first identified teens as a market underserved by the traditional banking system, Sopp says crypto is the next frontier where legacy players will be slow off the mark. (Crypto detractors will point to risk aversion and consumer protection as the reason behind that, but Sopp has been a true believer for as long as Current has existed.) As it establishes its crypto infrastructure, it still hasn’t forgotten about other underserved demographics. Half of the company’s customers are Black, the average age of a user is 27 and half of its users have never had a bank account before.
|Power Score: 38.09||Momentum Score: 56.47 (6)||HQ: San Francisco, CA||CEO: Colin Walsh||Founded: 2015|
In many ways, Varo looks just like the other neobanks in the U.S., only with fewer accounts relative to competitors such as Chime and Current. It offers what have now become standard features: no monthly account fees, no minimum balance and early paycheck access.
But Varo has one key difference: its own charter. In 2020, it became the first fintech to receive a national banking charter from the Office of the Comptroller of the Currency. In the 13 months since obtaining that charter, Varo claims it has tripled revenue and doubled customer accounts from 2 million to 4 million. Investors were paying attention — including NBA superstar Russell Westbrook — and Varo pulled off a massive $510 million series E funding round at a $2.5 billion valuation. The charter certainly opens up doors for product development related to credit and cash flow management. But closer links with the traditional financial system and the regulatory hurdles that come with that mean Varo could become a model for other neobanks — either as an example for what to do or what not to do.
|Power Score: 37.97||Momentum Score: 57.65 (5)||HQ: Atlanta, GA||CEO: Timothy Sheehan||Founded: 2014|
Like Current, Greenlight’s focus has been on “family finance,” with an emphasis on offering cards and accounts to a wider swath of age groups. But Greenlight’s ambitions extend far beyond the accounts themselves, which allowed the company to close two $200-plus million financing rounds in a span of seven months. In some respects, some moves Greenlight has made signal that it wants to be as much a fintech as an ed-tech company. The company launched a stock-screening platform for kids in early 2021 and partnered with one of its earlier investors, Amazon, to make it easier for families with Amazon Kids+ accounts to get set up with Greenlight, which will provide the company with a new user funnel. Between its last two funding rounds, which were seven months apart, the company added 1 million users to the platform, tied in part to the inroads it has made among Gen Z users, and as the company continues to expand, CEO Tim Sheehan noted that it may have its eyes on savings, and college planning in particular.
|Power Score: 36.86||Momentum Score: 61.18 (4)||HQ: Los Angeles, CA||CEO: Jason Wilk||Founded: 2016|
Dave may be named for the underdog that took down Goliath, but the company has become a giant of its own in the last few years, especially as the company’s focus has turned to banking, which co-founder and CEO Jason Wilk said was the plan for the company since he put together his initial investor decks. To evolve into a true neobank though, Dave opted to start by connecting to users’ existing bank accounts with a Mint-like service that offered customers emergency cash advances when it looked like they were going to enter overdraft territory. Once the company had users in the door — it now has more than 10 million of them — it rolled out banking products, all on the way to a SPAC deal the company announced in June 2021. (As of publishing, the company hasn’t yet gone public.) Through the pandemic, the company put a particular focus on the gig economy, launching a product called SideHustle, which is designed to connect workers to jobs via the Dave platform, creating a new pipeline for future users of the core products. Dave has said that it expects transaction revenue, including banking, to grow more than sevenfold in the coming two years, and it also has ambitions of becoming a super app.
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The Protocol Power Index is designed to view power through a holistic lens that reflects how modern tech companies amass and exercise their strength. To do so, the Power Index takes into account 30 metrics across five categories — Economics, Leadership, Innovation, People and Politics & Policy — and synthesizes them into a single Power Score. Read our full methodology statement here.
What happens next?
Several forces stand to shape the future of neobanking in the coming years: the blurring of lines between traditional and digital banks, the further unification of fintech services beyond banking and the emergence of blockchain as a means to boost accessibility.
|6||Varo Bank ↑||56.47|
Lines between traditional banks and neobanks are blurring, and that will lead to more direct competition between companies in either sector.
- Until recently, holding a charter helped distinguish traditional banks from neobanks. Traditional banks in the U.S. are legally required to hold a charter to perform basic functions such as lending and accepting deposits. Neobanks tended to avoid charters because they were expensive, remained difficult to obtain and came with a host of regulatory requirements.
- Neobanks instead focused on providing front-end services to clients while partnering with chartered banks on back-end banking. The fintech sector in general saw charters as an encumbrance to growth and innovation.
- But as neobanks grow, it can be more cost-effective to obtain a charter. Doing so allows a neobank to cut out a middleman banking partner and the associated fees. It comes with higher compliance costs, but that can more than pay for itself if the neobank is sufficiently large.
- Several fintechs, like SoFi and LendingClub, acquired charters by outright purchasing an existing bank. LendingClub, for instance, spent $185 million in 2020 to acquire the charter-holding Radius Bank. Despite the high price tag, the acquisition has been heralded as a tremendous success. LendingClub’s stock jumped 50% after the company posted a surprise profit in Q2 2021, which the company attributed in part to the charter purchase.
- Neobanks can also apply for a national banking charter through regulatory agencies. This is a complex process and requires the neobank to build internal compliance mechanisms from the ground up. It can take several years to obtain a new charter. For instance, it took Square more than two years.
- There are signs of that changing. In 2020, Varo became the first fintech company to receive a national banking charter from the Office of the Comptroller of the Currency. This could bode well for other fintechs, since the OCC has signaled that it wants to make it easier for tech companies to receive national banking charters.
- But if neobanks increasingly hold charters, what gives them an advantage over traditional banks? Neobanks attracted funding in part because investors thought nimble tech companies could out-innovate traditional banks. This increasingly looks like a false dichotomy. Neobanks are growing and taking on a lot of the same regulatory and bureaucratic baggage that traditional banks have — only neobanks aren’t nearly as large and powerful as companies like Goldman Sachs and JPMorgan.
- Traditional banks have also narrowed the gap on their end, closing their branches at record rates and launching their own full-stack, digital consumer banks, as we’ve seen with Goldman Sachs’ Marcus.
- These trends will mean more direct competition between traditional banks and neobanks. It could also spark an acquisition frenzy. Rather than neobanks acquiring charters, banking behemoths could acquire neobanks, particularly for the sake of expanding geographic reach. For instance, this past summer, JPMorgan purchased a 40% stake in the Brazilian neobank C6.
Neobanks will layer on additional banking services to their core products in a bid to boost revenue. But they aren’t necessarily best positioned to capture these opportunities.
- Checking accounts are the Costco hot dogs of banking services: They get people in the door, but they aren’t generating all that much money on their own.
- Neobanks are likewise counting on customer relationships to drive future success. They tend to see gaining a user as the most important and most difficult step; once that relationship is established, it becomes much easier to sell additional services to a customer. Those services would ideally have higher margins than simple digital wallets and checking accounts.
- MoneyLion, for instance, generated just $2.3 million of revenue from net interest income on financial receivables in Q3 2021. By contrast, it generated $3.2 million in revenue that quarter from recommending affiliate products and services and $30.4 million in fee income, which included fees on services like paycheck advances, managed investments and personal loans.
- The problem? Competition. Neobanks can build on their existing financial relationship with customers, but so can consumer trading platforms, digital wallet apps (Apple, PayPal, Google), crypto exchanges, “buy now, pay later” services, and so on.
- Just writing that list shows that the definitions are messy. For instance, Robinhood is a consumer trading platform, but it also functions as a crypto exchange for some customers and a bank for others (you can route direct deposits into your Robinhood account and use its Debit Card with Cash Management features). People have more options than ever in terms of finance super apps, and the more digitally savvy customers are already using multiple apps that offer overlapping services. That means more competition for neobanks, and oftentimes competition from companies specialized in the realm of the more lucrative “add-on” services.
And then there’s DeFi. There’s a slim possibility that disruptive blockchain technologies soar in popularity, particularly within underbanked countries.
- Some blockchain companies are attempting to grow market share in developing nations by taking novel approaches to onboarding customers. One example is Worldcoin, which is backed by Andreessen Horowitz and Coinbase Ventures. Worldcoin is offering cryptocurrency to people in exchange for their iris scans, and it will use those scans as verification for a digital bank account. The company wants to layer services on top of that account, similar to the general neobanking model.
- More broadly, DeFi banking protocols could appeal to individuals living in countries with unstable reserve currencies. They are also relatively unregulated at the moment, which could lead to lower cost structures that get passed onto consumers in the form of better rates. (It could also mean more risk for consumers, since banking regulations often require things like deposit insurance.)
- It’s worth reiterating that DeFi doesn’t pose a significant threat to the traditional banking system as a whole. It’s in the interest of powerful nations, including China and the U.S., to maintain control over central banking systems. That helps explain why China cracked down so hard on crypto mining and why the the Securities and Exchange Commission wants greater authority to regulate crypto markets.
To rank the competitors, we've developed a formula that encapsulates 30 criteria. Those criteria span five groupings that factor into power: Economics, Leadership, People, Innovation & Politics and Policy. We then developed two systems for weighting the criteria — one for measuring power and the other for measuring momentum — such that companies can be scored on a 0–100 scale. Read our full methodology here.
Update: This article was updated to include details of Nubank's IPO, which are reflected in the text but not the ranking's underlying data. Updated Dec. 10, 2021.