Better-Growth neobanks - the secret sauce for success

"Diversified revenue streams including lending and trading: Generating revenues beyond account fees or transactional revenues has always been essential in banking to achieve profitability. All of our Better Growth Neobanks have established or are in the process of building a sizeable lending business with the exception of Wise, which traditionally had its focus on currency exchange. Starling Bank, for example, made almost 80% of its fastgrowing 2022 revenue pool from interest-linked business. On the contrary, ~50% of the remaining neobanks are yet to seriously offer credit to their clients. ƒ

Innovation, innovation, innovation: Yes, we get it, neobanks by definition are innovative. But frankly, there is a huge difference between real innovation and just designing a fancy MVP product or upgrades thereof. Truly pioneering neobanks are launching products on a loop and gradually increasing the value-add for their customers. Think of Revolut, for example. It now offers more than 20 products, including pioneer features like Stays or Experiences, airline lounge passes and cryptocurrencies. Or take Nubank and its one-of-a kind tokenized loyalty system. That said, pockets of innovation of course also exist outside of this group: an example is Zenus, a new Puerto-Rican-based neobank that facilitates US account opening for non-US clients.

Sharp regional focus: Deep understanding of customer needs, regulatory advantages, undivided management attention, and an edge over global competitors - a localized approach provides many advantages. Better Growth Neobanks have focused their efforts on one or few home markets, really cracking things at home before planting flags elsewhere. Nubank is a good example, spending the first six years focused on excelling in Brazil, where they have now gathered 80 million clients, making it the fourth largest financial institution in the country. Others like Starling Bank or Kakao grew rapidly in their domestic markets for several years before only recently announcing international expansion plans.

Exploring the edge of analytics and technology: Is the secret to the Better Growth Neobanks' success their advanced use of AI or the ability to monetize technology/data via Banking as a Service and Open Banking offers? It would be too early to make that link. But the banks ranking high on our meter are taking these areas to the next level. We see immense efforts in applying AI to deal with the rapidly increasing customer base or provide Banking as a Service - showcased by Starling's Engine business or MoneyLion's integration of its embedded banking platform Even, now also known as Engine. Once value propositions and customer levels reach a certain maturity among the leading neobanks, the use of new technology will be crucial to maximize monetization potential and minimize the costs to serve those clients"

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