CUNA is now America's Credit Unions.
A stronger voice to advance the credit union industry.
One of the hottest trends in financial services is a wave of “neobank” startups promising a convenient, enjoyable banking experience delivered digitally and usually without a supporting branch network.
It isn’t a new concept. Bank One launched Wingspan Bank in 1999, well before smartphones could deliver on the convenience promise.
Simple offered a better proof of concept in 2012-2013 and was acquired in 2014 by BBVA, which shut down the “challenger bank’s” operations this May.
For obvious reasons, neobanks typically appeal to a digitally native segment. This cohort is growing rapidly, which helps explain the heated activity in the space.
However, recent launches have homed in on more specific target audiences. One of my favorites is Greenwood, which is designed to appeal to Black/Latinx consumers and small businesses. It has raised $40 million in seed capital and amassed a waitlist of more than 600,000 account holders although it will not go live until early 2022.
My other favorite is Daylight, which focuses on the LGBTQ+ community and has participated in Visa’s accelerator program. It’s currently in invite-only beta and is scheduled to fully launch later this year.
Other groups being courted include teens (the startup Step enlisted social media influencer Charli D’Amelio as an ambassador) and gig economy workers, a segment that’s attracted several entrants, including Better and Oxygen.
I typically place “neobank” in quotes because the vast majority of these ventures are not technically banks but rather front-end feature providers and marketing vehicles with connections to a chartered institution performing banking services behind the scenes.
You’ll notice their branding avoids the word “bank,” not only to avoid running afoul of regulators but because their premise is to position themselves as “anti-banks.”
The mission and message underpinning these neobanks’ campaigns: “We speak your language. Traditional banks don’t understand you and haven’t met your needs. We do and we will.”
Many neobanks strive to build a community and forge bonds among their clients, often favoring the term “members” over “customers.”
Doesn’t this sound a lot like the fundamental credit union tenets of “common bond” and “field of membership,” not to mention the “alternative to a bank” proposition?
The sense of belonging generated by a common bond need not involve a tradeoff against scale or growth. Gig economy workers may arguably be less motivated by the concept of community, but their line of work creates specific needs (cash flow, documentation) that a mission-focused credit union could embrace as a specialty.
Neobanks are borrowing several of the key ingredients that fueled credit unions’ initial emergence and applying them to a digital setting. They also have the latitude to channel investment funding into app development.
Perhaps Wingspan’s original slogan—"If your bank could start over, this is what it would be”—was accurate if 15 years premature.
If credit unions can stay competitive in the digital arena, the neobanks are doing a fine job of demonstrating that the core credit union value proposition continues to resonate.
It would be a shame to allow the next generation of Americans motivated by these principles to be funneled surreptitiously to large banks.
GLEN SARVADY is managing partner at 154 Advisors.