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CUs CAN FIGHT BACK AGAINST NEOBANKS BY FOCUSING ON THE BASICS AND COMMON BONDS.
Neobanks are rising in popularity, leveraging online savviness and problemsolving capabilities that resonate with younger, digitally minded consumers. These online-only financial institutions, sometimes called "challenger banks," typically specialize in a few fintech-powered niche services, such as savings and checking accounts, that meet the greatest needs of their target markets. Positioning their brand as something different to embrace while being present when the consumer is ready to act, neobanks have mastered the art of account acquisition.
WHY NEOBANKS ARE FLOURISHING
Many neobanks start with offering front-end services, partnering with a bank or credit union on the back end for things that require bank or credit union status to do; as they grow, some neobanks later apply for financial institution status of their own. Full-stack neobanks (tinyurl.com/3eypjsev)-Varo (varomoney.com) Square/Block (squareup.com, block.xyz) and LendingClub (lendingclub.com), for example- have banking licenses, so they control both the front- and back-end operations.
However, the more prevalent neobanks-like Chime (chime.com), Current (current.com), Aspiration (aspiration.com) and Dora Financial (bankdora.com), a credit union initiative-do not have a banking license. These groups partner instead with one or more traditional financial institutions and control only the front end of their operations.
Insider Intelligence (tinyurl.com/2rradymw) reports the largest U.S. neobanks by number of account holders are Chime (13.1 million), Current (4 million), Aspiration (3 million) and Varo (2.7 million). It projects these numbers to reach a total of 47.8 million by 2024, about 17.9% of the U.S. population. Research from CUES Supplier member Cornerstone Advisors (crnrstone.com), Scottsdale, Arizona, adds two more contenders to the mix (tinyurl.com/ypjvpn35): 8% of Gen Zers consider PayPal (paypal. com) their primary checking account provider, and 4% have their primary checking account with Cash App (cash.app).
Factors supporting the rise of the neobanks include their hyperfocus on serving a specialty niche and reaching consumers in the way they prefer. "This customer-centric approach is driving the growth of neobanks," stresses Sam Brownell, founder of CUCollaborate (cucollaborate. com) and founding volunteer for CU De Novo Collective (cudenovocollective.org), which supports the establishment of new credit unions and saving existing ones.
"Neobanks don't rely on a legacy brand, demographic or even a full range of products," explains Brownell. "And they have no...