Thank you Caribou. I was entirely focused on the US, so $NU would not be in-scope, but I agree completely that this lending-first model works better than the transaction account-first model of US Neobanks. For better or worse, I don't think of Lending Club or SoFi as Neobanks (which was Sal's point). If I have a defense it would be that this is a payments blog and the lending-first US models are not really payments-relevant. The transaction-first Neos rely on a Durbin moat and are payments relevant. Of course, Affirm, Klarna, AfterPay et al. are payments-led lenders, but they don't yet offer deposit accounts that I am aware of, so also not Neos. But I likely should have at least commented on SoFi & Lending Club if their deposits are meaningful. I will check! Thanks to everyone for the comments! I was hoping to generate conversations with these Post but this is the first one that really had any.
Thank you Alan! I am a bit blind on the European situation, which is why I stick to North America, but this makes sense to me. The US is less fertile territory for a multi-currency wallet of course, so this particular tactic would be less effective here
Thanks for the validating post Andy! The story is very similar in Europe with the exception of cross-border payments where Wise, Revolut and other neos have targeted the multi-currency payment market and undermined the traditionally profitable retail FX market. However, paying for a bachelor party weekend in Prague is still not a profitable business model. This has forced Neos like Starling in the UK to build a real balance sheet targeting small business customers.
Maybe it’s a definitional question but would sofi and lending club (which bought a charter but that’s still just a different path to what Varo did) not be Neobanks?
And I assume it’s US neobanks you’re referring to? $NU might be the exception to prove the rule, but oh my it does seem exceptional!
I’m in agreement with you, the cohorts the neobanks are attracting were overlooked by banks for a reason (unprofitable) and they’re unlikely to go after them.
Rates down will help these neobanks survive (for now) but I wonder how much runway they truly have.
Thank you Caribou. I was entirely focused on the US, so $NU would not be in-scope, but I agree completely that this lending-first model works better than the transaction account-first model of US Neobanks. For better or worse, I don't think of Lending Club or SoFi as Neobanks (which was Sal's point). If I have a defense it would be that this is a payments blog and the lending-first US models are not really payments-relevant. The transaction-first Neos rely on a Durbin moat and are payments relevant. Of course, Affirm, Klarna, AfterPay et al. are payments-led lenders, but they don't yet offer deposit accounts that I am aware of, so also not Neos. But I likely should have at least commented on SoFi & Lending Club if their deposits are meaningful. I will check! Thanks to everyone for the comments! I was hoping to generate conversations with these Post but this is the first one that really had any.
Thank you Alan! I am a bit blind on the European situation, which is why I stick to North America, but this makes sense to me. The US is less fertile territory for a multi-currency wallet of course, so this particular tactic would be less effective here
Andy, How do you categorize and assess SoFi?
What is Varo's "Other Expense" - - its seems like a big driver of their low profitability.
Thanks for the validating post Andy! The story is very similar in Europe with the exception of cross-border payments where Wise, Revolut and other neos have targeted the multi-currency payment market and undermined the traditionally profitable retail FX market. However, paying for a bachelor party weekend in Prague is still not a profitable business model. This has forced Neos like Starling in the UK to build a real balance sheet targeting small business customers.
Maybe it’s a definitional question but would sofi and lending club (which bought a charter but that’s still just a different path to what Varo did) not be Neobanks?
And I assume it’s US neobanks you’re referring to? $NU might be the exception to prove the rule, but oh my it does seem exceptional!
Enjoyed the post, Andrew. Thanks for sharing.
I’m in agreement with you, the cohorts the neobanks are attracting were overlooked by banks for a reason (unprofitable) and they’re unlikely to go after them.
Rates down will help these neobanks survive (for now) but I wonder how much runway they truly have.