I have been meaning to write about this for some time. I get really worked up when I read about the latest fintech inspired Neobank starting with the intention to provide online banking services for some targeted demographic. The inherent message when you see these announcements is “Your bank is failing to provide the services you need and deserve and we are going to solve this with {insert crazy sounding name here because they needed a dot com URL}”. By definition, a “Neobank” is NOT A BANK. Which means that they are likely a 3rd party that is using a traditional bank to actually perform the banking activities while they provide a new shiny looking front end to capture new customers. Now, let me say this clearly – the Neobank competitors are doing a much better job in marketing than the typical community bank. If our customers are easily swayed by a Neobanks marketing, that’s on us to address. In addition, the Neobank’s online banking and mobile apps generally provide a better customer experience than what most community banks offer. If only because they offer specific functionality that is targeted to a specific demographic versus offering “basic” online banking that provides the key elements that a customer might need and little else. And better marketing combined with a robust customer experience does matter. It certainly makes sense that individuals familiar with the digital banking experience of a typical bank may be enticed after seeing a demo of the latest greatest Neobank mobile app. It doesn’t seem to matter that the compliance, rules, FDIC insurance, etc. provided by a bank is absent. It is the user experience that matters. Every single time you see a new Neobank offering pop up, you should investigate what they are offering, look at that user experience and see how it compares to yours. If your digital experience is lacking, then fix it. See, Neobanks come and they go. In fact, most all of them go. You just don’t regularly read about them going, they just fade away. In my regular news feed, I found an article from The Financial Brand that touches on this issue. The Article highlights that most Neobanks that have started over the last 10 years are no longer active. Try this, grab a pen and write down every Internet only Neobank option you can think of. How’d you do? I’ll wager you couldn’t come up with 5 names. Did you have Moven and Simple on your list? They’re gone. These offerings had a big splash and got all kinds of press. And eventually were folded into a traditional bank. Moreover, the Financial Brand article highlights that the appetite from venture capital firms funding Neobank startups has been significantly reduced. Could it be many, many failures and few successes in the Neobank space that is driving this trend? Very likely. According to one source, there are about 250 Neobanks operating world-wide right now. How many of these will be operating one year from now is unknown. What is known is that the hype-cycle for these offerings seems to be coming to an end. Like Buy Now Pay Later (BNPL), Neobanks could be headed for a spectacular crash as bigger competitors crush them or they smash into the unrelenting regulatory requirements/compliance wall. My take is that Neobanks are created to achieve some number of online users and then convert that market share into some deal where they sell out to a traditional bank. They never sustain as a Neobank because at the end of the day, you can’t generate sufficient profits by pretending to be a bank while you are paying a real bank behind the scenes. But you can grab market share and that grab may be centered on younger millennials and Gen Zs. So, if you are a traditional community bank, can you just wait out the latest round of Neobanks hoping that any customers who jump ship will eventually come back around to bank with you again? I think not. Community banks who are not aggressively orienting services to meet the demands of the online, mostly younger prospects are not setup for long term success. If valuations for Neobanks are trending downward, one option might be to pool funds amongst a common group of FIs and buy one. Why not? You would get a world class front end to match up with your well run competent back-end banking services. Or maybe you can convince your legacy core to buy one. Some of them are doing that now and community banks will benefit from their doing so, specifically by upping their digital banking presence with CX that meets the expectations of younger potential customers. As a chartered community bank, you have a built-in advantage over any Neobank. But absent the digital banking experience that younger customers expect, effective marketing focused on compelling and well written stories, you will always be chasing these come lately online “bright, shiny object” Neobanks. Could you use your upcoming strategic planning sessions to plan a new course that will have your institution in a position to dominate in the Young Millennial / Gen Z markets by 2024? I’m sure you can. But it will take a dedicated effort. It will take a board and senior management team that accepts that the long term future of the FI is bleak without this focus. It will take upping your digital banking Customer Experience and then telling great stories about how that digital banking platform is making banking easy and fun. Let me know what you are thinking. If you have questions about how to achieve this big goal, contact me at dpeterson@bankers-bank.com and let’s collaborate on how you can make this happen.