Looking for the neobank killers

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For some venture capital investors, the neobank craze is changing, as they look for other fintech sectors to generate profits. This is despite the fact that a handful of neobanks are doing very well. According to Accenture, digital-only banks operating in the U.K. could amass a total of 35 million customers globally within the next 12 months — up from 13 million today — based on current growth rates.

The same report also says, “Digital-only banks are also reaping the rewards of improving the customer experience,” and that they have a much higher score than the traditional banks in this respect. However, this doesn’t mean that they are the clear winners.

According to John Detrixhe writing at Quartz, “Questions are being raised about whether this fintech craze is another quixotic quest for market share that burns cash but doesn’t generate much profit in return.”

But where will investors turn to? It appears the answer is fintech software. Detrixhe quotes Steve Cohen, a hedge fund founder, who believes that the neobank unicorns won’t ultimately sink the big banks. He suggests that the old banks should, and will, learn some new tricks, and that these will come from fintechs. What they should be bringing on board, if they are going to fight off the neobanks, are things like cloud-hosted software and systems that make it easier to sign up for a new account.”

And that is the new investment opportunity — software that permits digital account opening, as well as machine learning systems, such as chatbots to handle customer relations. It may not be quite as ‘brave new world’ as investing in a neobank, but as the traditional banks have larger customer bases, they are a surer bet. These software solutions could be the neobank killers, but let’s wait and see before saying that neobanks are dead, because that surely won’t happen.

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