Thread by @A_Endo

1/ There are 6k banks in the US. Most will cease to exist in the next decade, as NeoBanks drive consolidation, driven by increasingly household names like Chime and Square and even Walmart, who is again mulling a leap into banking. This is a THREAD. pymnts.com/walmart/2021/w…

2/ Why so many banks (Canada has 88, Japan has 200, the US has 6000)? Partially regulation (lots of regulators), partially local markets (pre-web), and partially inherent conservatism. But many of those are about to get trampled by tech-enabled brands. forbes.com/sites/ronshevl…

3/ Mobile UX, digital distr & cost are the whole game today -- things fintechs (more efficient due to tech) are greatly positioned to provide. Physical proximity evaporated as a key concern with COVID-19. Contagion finished what ATMs started 20 years ago. smithsonianmag.com/history/atm-de…

4/ So what will replace them? Square is illustrative. It’s product is famously popular. Now launching its bank (enabling FDIC insured deposits), its growth is astonishing, having grown to over 30m active users in 2020. Keep in mind that there are 330m adults total in the US.

5/ This is leading to real losses. Banks’ product experience is terrible. Deposits are leaving, as are spending / borrowing. That means slower loan growth and margin compression, both of which have begun and will continue as banks try to retain feeling consumers.

6/ Most banks lack a counterpunch. They could integrate with higher-touch HNW customers and become embedded business partners to capital intensive / complex businesses, for instance. But branch + deposits + loans is a losing strategy. Fintechs now own the commodity verticals.

7/ But this doesn’t mean that every Neobank is on the road to riches. On the contrary, as indicated above, this is a scale game, and most countries only have a few big providers. Russia is a good example, where Tinkoff is the dominant player in town at this point.

8/ Tinkoff began in 2006 as an experiment to see if a branchless bank would work. It definitely worked. It’s now the largest bank in Russia and basically participates in every financial category including many non-financial services offerings. kapronasia.com/research/blog/…

9/ What makes winners and losers? The key is to actually own the user, in the ways that trad banks have for so long. Casual use (e.g., just for travel) has been an issue with European Neobanks, requiring more users to get to a breakeven. @LexSokolin lex.substack.com/p/long-take-ho….

10/ It’s also important to have a long-term business model. In the long-run, it probably makes sense for NeoBanks to have a non-deposit angle, as interchange alone is pretty thin on margin and exposed to regulation. Lending is likely a core competency that most will need.

11/ It will be interesting to see what happens in the next decade. The US NeoBank market will mature, demographic focus will become much more important (see @FortuBank), and more interesting models globally (like @timeneon) will replace traditional banks everywhere.

12/ Interested in any feedback on all this. Lots of people out there smarter than me on the #neobank subject!. You should check out @LexSokolin @mikulaja
@MJenkins88 @AlexH_Johnson @jackiereses @regulatorynerd @fintechjunkie @MiguelArmaza