KEY POINTS

  • Neobanks — digital-only banks that aren’t saddled by traditional banking technology and costly networks of physical branches — have been working to redefine retail banking in major markets around the world. Driven by innovation-friendly regulatory reforms, these companies have especially gained traction in Europe over the last three years.
  • While the US is home to some of the earliest neobanks, including Simple and Moven, its neobank ecosystem has lagged behind its European counterpart. This has largely been the result of high regulatory barriers to entry, including an onerous regulatory regime that's made it hard to obtain a banking license, and the entrenched position incumbents hold in the financial lives of US consumers.
  • However, recent developments suggest these startups are finally poised for the spotlight in the US. Most notably, in a landmark decision, mobile-only bank Varo Money received preliminary banking license approval in 2018, indicating that regulation may be slowly loosening to accommodate these digital startups. Meanwhile, foreign entrants have announced plans to pitch their tents in the country, and incumbent lenders have started to roll out their own stand-alone digital outfits.
  • Three distinct influences are responsible for creating the fertile ground for this evolution: regulation, shifting consumer attitudes, and the activity of incumbent banks. In addition to Varo Money's charter approval and its implications, US consumers are becoming more tech-savvy, while their gripes [...]