An Opportunity to Bank On
Despite Big Banks’ best efforts, the age of e-banks is accelerating quickly within the banking industry.
A Little History:
Also known as challenger banks, neobanks are branchless, digital-only financial institutions that challenge the traditional banking model.
Challenger banks have their roots in the UK as, during the post-financial crisis in 2008/2009, many financial institutions were consolidated due to financial losses in mortgage defaults and rising interest rates. During this time, banks stopped lending each other money, which meant it was much harder for both consumers and businesses to get credit.
In 2013, in response to the banking crisis, a new opportunity was introduced in the UK. Regulation was changed to allow neobanks to raise capital and build systems before they applied for a full banking license. This gave startups like Starling, the first neobank in the UK, the chance to compete against the bigger, legacy banks.
Since then, other neobanks like Monzo, Atom Bank, Revolut and Tide Bank have entered the UK market, and the neobank trend has gone global, including the United States.
Varo Has Broken into the Vault:
San Francisco-based mobile bank Varo just won approval from the FDIC last week to receive deposit insurance, becoming the first neobank to do so.
For the 5-year-old fintech startup, it’s the first step towards becoming a full-fledged digital bank that can hold cash, give loans, and create credit cards.
The FDIC-approval is a milestone in its three-year journey toward receiving a national bank charter. Upon receiving full bank charter approval, Varo plans to roll out more products, including credit cards and joint accounts.
Although Varo cleared a major hurdle by getting the FDIC’s blessing, it still needs approval from the Office of the Comptroller of the Currency (OCC) and the Federal Reserve.
The startup has already spent 3 years — and ~$100m — getting to the point it’s at today.
Become a Challenger Bank is Challenging:
·huge amounts of red tape.
·regulators prevent fintech companies from taking reckless moves with customers’ money.
·old banks have lobbied aggressively to keep them out of the club.
·fintech startups need banking partners to stay afloat.
Big Banking – Putting Its Mouth Where Its Money Is:
Varo partnered with the Bancorp Bank, but also continued working with federal agencies to find a way to operate independently.
Varo must now clear its final few hurdles to become fully functional.
Meanwhile, Big Banks are using their borrowed time to build out their own online banks to edge out their online rivals.
Goldman Sachs launched its online bank Marcus in 2016. In 2018, Wells Fargo followed up with an app called Greenhouse.
The Opportunity:
Big Banks are on borrowed time and you bank on the fact that it’s only a matter of time before traditional banking is overturned.
Varo may be a neobank to start building a relationship but it has also paved the way for a flood of additional challenger banks coming onto the scene.
Keep a close watch on this sub-category as an opportunity that you can bank on…
Just remember, don’t stalk. Don’t hound. Don’t send a myriad of messages about yourself. So what do you do?
Build trust. Share category insights. Do some light consumer research. Offer purchase pattern eye-openers. Toss out some trends. Show your expertise and how it’s relevant. Just… don’t… sell!
Good luck and remember to prospect smAARt and pitch with passion!
