Will The Neobank Threat Come Back?
January 30, 2025
By: Tyler Brown
Venture Capital and Banking
At first glance, fintech had a quiet 2024. According to CB Insights, global quarterly fintech funding ranged from $7.6 billion to $9.9 billion, between 81% and 75% below the 2021 peak. We’ve suggested that this downcycle will force fintechs to be more resilient and create investment opportunities with rational valuations. At the same time, however, muted funding may disguise potential threats to the banking industry.
Neobanks, in particular, don’t feel like the palpable threat they once did — eyepopping headlines about multibillion dollar valuations are scarce and many have left the market, especially in the US. But quietly, neobanks’ challenge to traditional banks still exists. The difference is the threat now appears to be growing concentrated within bigger names.
In Q4, two large neobanks — one based in Argentina and the other in the US — each raised hundreds of millions of dollars in equity:
In April, we also noted UK neobank Monzo’s $431 million Series I and plans to attempt another big push into the US.
Large, stable neobanks at home and others that plan to enter the US market should worry bankers. Chime, Monzo, and Nubank’s parent company have all claimed a profit by some measure. Nubank’s parent company is public, and Chime is reportedly preparing for an IPO. Scale and firm financial footing make these neobanks credible challengers.
Before the fintech bubble burst, when neobanks felt like more of a threat, many financial institutions changed their products and policies to match neobanks’. The same institutions may have sighed with relief as a difficult funding environment sucked the air out of consumer fintech. But with the dust settling, the ones that remain — or are prepared to enter the US market — appear more dangerous.
Today, bankers would be wise to avoid thinking of neobank competition as a reason to jump for shiny new features. Large neobanks are shaping up to compete with incumbents of all sizes for customers — that means strategists should treat them as long-term, national competition. Given some neobanks’ diverse product offerings, they could threaten multiple sources of banks’ revenue.
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