Banks Lose Deposits as Neobanks Surge
A few years ago incumbents thought this was impossible. They were wrong!
This is my daily post. I write daily but send my newsletter to your email only on Sundays. Go HERE to see my past newsletters.
HAND-CURATED FOR YOU
This is a great read from Mambu that discusses how bank deposits, the lifeblood of all banks, are at risk from neobanks and other fintechs.
It seems only a few brief years ago that incumbents scoffed at neobanks and thought they were never going to catch on. They were wrong!
Now incumbent banks face threats from neobanks, fintechs, payment companies, and a host of other digital players to their deposits, proving just how wrong they were to write them off.
Once people develop trust in digital challengers holding their money, many simply won’t go back to keeping their money in traditional banks. Particularly, younger clients who are already digital friendly.
This problem isn’t hypothetical. Bank deposits in the US and EU peaked in 2022 and have been heading downward ever since. At the same time, global bank growth is estimated at a 4% CAGR through 2030, while their nemesis, neobanks, are growing at 46%!
And it isn’t just deposits. Younger clients are going with digital wallets and abandoning credit cards, another mainstay of bank profits.
Banks are bleeding market share to a new generation of nonbanks born in the fintech revolution, to the tune of around 16% of their total global revenue for 2023 and growing.”
“Banks are bleeding market share to a new generation of nonbanks born in the fintech revolution, to the tune of around 16% of their total global revenue for 2023 and growing.” See also my related article “Banks Bleed Revenue to Nonbank Fintechs—AI Can’t Stop It:” HERE
Banks are between a proverbial “rock and a hard place.”
On the digital front, incumbents are digitally challenged by legacy systems and managers, leaving them with little ability to fight back.
Then, on the deposit front, neobanks are already paying, on average, one percent more than incumbents, so increasing deposit interest becomes very expensive.
This deposit stress will only be heightened with the rise of stablecoins and to a lesser degree, CBDCs. CBDCs are interest-free, and while stablecoins under the GENIUS Act can’t have interest, the exchanges that hold them can! What a loophole!
Incumbents are in trouble. Time was on their side 5 years ago when they ignored neobanks, but now they no longer have that luxury.
Mambu is correct when it says incumbents need a value reset!
👉Value Reset
🔹 Switching channels :
Changing demographics and customer expectations are having an outsize impact on money flow and the future of deposits. Different payment habits, particularly among younger Generation Z customers and older Millennials, have already driven a massive shift toward alternative payments.
🔹 Worlds of opportunity:
National or regional boundaries do not limit opportunity. Large emerging markets dominate the growth of digital and alternative payments, giving fintechs leverage to move into new areas like deposit-taking.
🔹 Upping the tech stack
Technology plays a key role from front to back office – enabling success at scale by giving banks the freedom and agility to respond when market or customer conditions change.
🔹 Keep taking the medicine
Technology’s tentacles spread across the modern deposits and transactions enterprise, from onboarding to security, compliance and deposit management. Or at least they should.
If you know someone who would like this newsletter, please share it with them and help grow our Asia, CBDC, and AI aficionados community!
