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Neobanks Steal Marketshare From Traditional Banks

Posted by Jeff Pelliccio on Jul 23, 2018 9:00:00 AM

In ICS insights, Job Trends, Accounting and Finance

In January of 2018, there were two stories making headlines that were rather interesting regarding the neobank-threat. The first one was about the new mobile-bank called Chime, which was created for millennials. To date in January, it had already opened 750,000 accounts and users were signing up at a very fast pace.

The other story was featured in Tearsheet, and it outlined how SoFi was opening checking accounts without ever having acquired a banking license; this only proved that an entity doesn't necessarily have to be a bank to serve customers financial products like checking and savings accounts.

How Do Customers Feel?

Is there a neobank-threat taking place? Should banks be worried? Thanks to Cornerstone and its consumer research, we have a couple answers to those questions.

When consumers were asked about the three most important aspects they look for when opening a new checking account, none of them said they looked for an entity that provided them with a 'personal finance operating system.' Another question that was asked was about the existing banking institutions that consumers currently had a primary checking account with, and only one percent of Millennials responded that they had it with a digital bank.

An amazing 57 percent had their account with a megabank. 17 percent had it with a large regional bank, while 13 percent had it with a credit union. Six percent had it with a community bank, and four percent with other types of financial institutions. Three percent used USAA, and as outlined above, one percent used a digital bank as their primary checking account provider.

Understanding the Hard Math

Before you actually do the math, you might think that a measly one percent might not sound like much in regard to people who use a digital bank as their provider of a primary checking account. Once you do the math, though, you'll see that one percent of Millennials (83.1 million in 2015) actually equals out to be 831,000 checking accounts from a digital provider.

If Chime has a whopping 750,000 of those 831,000 accounts, this means it already shares 90 percent of the digital banking market share. That's pretty impressive. This statistic means that there are at least one of three things taking place:

  • Not just Millennials are using Chime
  • Millennials are using Chime as their service provider for other types of accounts in addition to a primary checking account
  • Chime is not being honest in regard to the number of accounts it has opened

The only reason number three on the list was even mentioned is because it wasn't that long ago that another neobank blatantly lied about how many accounts it had opened. One would think it would be quite simple to tally up how many accounts an entity has opened, but maybe it's not. However, if we throw Chime a bone and take number three off the list of reasons mentioned above, then we are left with reason numbers one and two.

Reason number one is a very large possibility, especially being that when Gen Xers are compared to Baby Boomers, of those who have smartphones and a checking account, one percent of Gen Xers state they have the checking account with some type of digital bank.

If reason number two is actually true, then it would have been nice if Chime had also given us some information regarding the other types of accounts that Millennials have with the digital banking institution as well as the activity and balance information for these accounts. If they do have more than a checking account with Chime, there's a good chance these accounts aren't seeing much activity.

Are Neobanks Going to Present a Threat?

When consumers were asked which financial institutions they would be most interested in opening a new checking account, a large percentage said they would consider a neobank. So even though it may be a surprise that Gen Xers would consider a neobank, studies revealed that just as many of them would consider one as Millennials. Still yet, this could represent bad news for the neobanks because Millennials are the generation that is most likely to have the need to open a new checking account.

What Are the Conclusions?

You Don't Have to Be a Certain Age to Be Interested in a Digital Bank

Instead of age, it's more about confidence in digital banking systems when it comes to considering neobanks as a service provider for a primary checking account. Not only are both generations finding themselves comfortable with digital banking technology, but both of them believe in digital banks' ability to safely protect and take care of their account holders' money.

It's More About the Technology

Even though there is a large percentage who are turning to megabanks for a primary checking account, it's still about the technology that these megabanks present. With a megabank, you are likely going to be offered technological advantages that a small bank cannot provide, like mobile banking. So while some people might say Millennials are more interested in branches, the truth is, they are more interested in the technology these megabanks can give them.

Fortify Your Tech with the Right Talent

If your bank is going to work on strengthening it's tech position in the market, your company will need the right talent to move things forward. Partner with ICS and find the best professionals for the job. We have plenty of qualified candidates who would be interested in an opportunity to make an impact. Keep up with the neobanks and click below to start stealing back market share. 

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