Mantvydas Stareika, CEO of CapitalBox provides an assessment of Europe’s financial future and the important role of neobanks as the ecosystem becomes increasingly digitised.
When thinking of the last decade of fintech in the broadest sense, the widespread proliferation of neobanks is among the most public-facing and prominent success stories. Part of this has to do with sheer numbers: the vast majority of people interact with the finance world by way of personal banking, so it makes sense that neobanks are how the average person interacts with fintech at all.
There’s a bigger market for personal banking than there is for virtually any other aspect of finance, so it only follows that success here is measured in the millions. In 2021, neobanks had integrated 146.4 million users, and that number is expected to hit 350 million in 2026.
It’s not difficult to explain the critical reasons for neobanks’ ongoing success in and beyond Europe. Decades of digitisation leading up to this moment have made integration relatively easy, and the digital-first and streamlined user experience at the very core of neobanks is highly appealing. Equally appealing are neobanks’ service fees, which tend to be lower than traditional banking fees, in addition to neobanks’ willingness and ability to use alternative criteria for evaluating credit and granting loans.
Neobanks’ ability and willingness to evaluate credit via non-standard criteria and grant loans based on those criteria is a particularly crucial factor in their success. This function is ideal for young people beginning their careers, and it’s worth noting that this demographic is already highly preferential to digital-centric services.
It’s also ideal for unbanked and under-banked people of all ages, solving a longstanding problem that traditional banks haven’t felt so compelled to address. Common neobank offerings like lenient overdraft protection, free peer-to-peer money transfers, and high-yield saving accounts are proof of neobanks’ user-centric thinking. In having to actually court users, neobanks stumbled upon an old-school business tenet that some traditional banks forgot long ago: if you offer features that are appealing to the average customer, both your company and the customer will reap the benefits.
Beyond individuals, this new approach to credit and lending is a huge boon to early-stage startups and SMEs, often ignored by the same traditional banks – to the detriment of the startup community and the broader economy at large. In other words, SMEs make up some 99 per cent of the European economy, so keeping them underfunded is tantamount to actively stymying economic growth.
In Europe, this runs deep. Major capitals like Berlin, Paris, Amsterdam, and Stockholm have long been driving Europe’s startup economy, whereas smaller cities like Tallinn, Vilnius, and Porto have transformed themselves by actively courting SMEs. This long-term development has made it possible for even smaller locales to become hubs, including the Helsinki suburb of Espoo and the Swiss town Épalinges. On top of it all, there have been multiple European Commission-sanctioned efforts to drive startup development and modernise regulations that apply to these companies. With a startup economy this established, there’s no longer an excuse for under banking.
Startups are already a massive part of the economic conversation, so the neobanks funding them – and addressing that funding gap head-on – must be as well. As fintech’s most public-facing success story, neobanks can and should be major players in determining Europe’s rapidly changing financial future. Already acting as a real solution to a longstanding underbanking problem, neobanks can’t be left out of the conversation, and that conversation won’t be useful without discussing underfunded early-stage startups and SMEs.
With neobanks already having ascended past the initial stages of widespread adoption, they must continue prioritising further integration with SMEs looking to secure financing, and they must keep pushing this issue within the broader financial sector. Modernising regulations and taxation to meet the then-unprecedented needs of startups was a serious effort in the early days of this major economic shift, and now it’s time for the SME funding gap to become a priority.
None of this is to suggest that neobanks should displace traditional banks in this conversation either. More meaningful collaboration between traditional banks and neobanks would be beneficial for both parties and particularly good for their users. If anything, it’s time to dismiss the perceived dichotomy between the stodgy old bank and the upstart and unstable neobank, as neither caricature reflects reality or advances financial development. The new financial future is still collaborative, and it’s not achievable if neobanks are treated as a novelty or traditional banks are treated as obsolete.
Neobanks have proved their mettle, their staying power, and their financial savvy. They’ve not only earned a seat at the table but also had firsthand and pioneering experience with addressing that startup funding gap. As their growth continues, this is the ideal moment for neobanks to help determine Europe’s financial future – a future, planned correctly, worth funding and living in.
