Neobanks moving from Growth to Profitability

There’s a reason that neobanking firms and organisations are often referred to as challenger banks. That is because when it comes to the financial marketplace, clout counts, and the playing field is far from level. Let us take a moment to examine the competition:

Incumbent banks have had decades if not centuries to secure their positions as the authority. For just as long - and longer consumers have had nowhere else to bring their financial business than these behemoth corporations.  

Then came alone the challengers, and it seemed like everything changed. Neobanks and their proprietary technology and services - the David of the bout, had put the behemoth corporate institutions on their heels - but it is no secret that profitability has been a challenge, with resources constantly needing to be reinvested into growth, a question has arisen.  

When - and how, will neobanks stand to move from growth to profitability? To answer this, we have to go back and ask some fundamental questions about the industry and its models.

Let’s start at the beginning:

What is Neobanking?

For those who may not be quite as familiar with the term, we begin with what seems like an obvious question, but for our purposes, it is relevant. Neobanks are defined by their position in the market and their use of financial technology (fintech).  

These smaller firms and organizations are taking advantage of some of the shortcomings that traditional banks have had in adapting to technology. We will delve a little deeper into this in the context of client experience and services offered, but in essence, a neobank is a non-traditional bank that uses technology to provide services that are faster, less expensive, or more integrated than traditional banks have typically been, until recently. This brings us to our next question.

What is the Value of Neobanking?

The value of neobanking begins in the micro and extends through the macro. We begin with our perspective zoomed-in close:  For a business such as an SME, neobanks that focus on payments allow them to free up cash flow, take on more work, and save money. Neobanks allow consumers and businesses alike to make the most of their credit rewards and save time on transactions, late penalties, and so on and so forth. Neobanking firms such as Robinhood remove barriers between consumers and investment information, allowing them to take part in the stock market and build wealth. These are certainly some great examples, however, at a higher level, neobanking has an even far greater value: Competition.

For as long as anybody can remember, traditional institutions which make up the demographic of incumbent banks really called the shots. The market was well-segmented and consumers and businesses alike were subjected to all of the shortcomings that came with traditional banking processes. Siloed structuring caused many departments within these organizations to develop their own technology that was often incompatible with other departments. This flawed internal infrastructure often causes delays for consumers and businesses alike, and as the cliche goes; time is money.

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The true value of neobanks is that they have forced even traditional banks to put a little more effort into the convenience portion of ‘secure and convenient’. This climate of paying attention to the experience of clients has been one of the biggest values that neobanks provide, but therein also lies their biggest threat.

Is Neobanking Growing?

The answer to this is a hard yes. Neobanking is definitely growing. According to Global Market Insights, the neobanking market is set to expand at greater than a 45% growth rate through 2028. Of course, not all neobanking is being done by neobanks anymore. As traditional banks are getting wise to the competition that they face, they are also massively investing in their IT departments using their resources which as a rule supersede those of true neobanking organizations.

Neobanking for Small Businesses

As neobanking firms and organisations work hard to make room for themselves in the market, their actions are producing positive repercussions for SMEs. Small businesses and enterprises stand to benefit greatly from neobanking efforts as better, more advanced, secure, and convenient services are developed in this new air of competition and advancement. So what does this mean for making the leap from growth to profitability for most neobanks? It depends. As markets expand, proprietary services that have been putting the larger incumbents on their heels appear to have a stable future ahead of them - as long as they are able to stay competitive.  

Sprout With Us!

Every business owner seeks to improve their system, why not start with switching to Neobanks? when you incorporate your company or appoint us as your corporate secretary, we can connect you with our Neobank partners. Contact us now for more information!

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