Digital-only banks, also known as neobanks, are redefining the future of banking around the world. Though off to a slow start in the US due to high regulatory barriers, recent developments and the loosening of regulations suggest that US neobanks are set to take off. San Francisco-based neobank Chime has attracted over 2 million consumers and is adding more per month than Wells Fargo or Citi – demonstrating the shift toward digital channels.
The development of more neobanks in the US is expected to bring more awareness to digital-only banking, and eventually wane-out traditional banking competitors. Neobanks, that isn’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 and revolutionize the finance technology. These firms are 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 oldest neobanks — including Simple, which set up shop in 2009, and Moven, which was founded in 2011 — the country’s neobank ecosystem has lagged behind its European counterpart and this is due to the lack of support from the administration.
That’s largely because of an onerous regulatory regime, which has made it very difficult to obtain a banking license, and the entrenched position incumbents hold in the financial lives of US consumers. Navigating the tedious and costly scheme for obtaining a banking charter and appropriate approvals has been a major stumbling block for the country’s digital banking upstarts. However, developments over the past year suggest these start-ups are finally poised for the spotlight in the US.