Special report


Another bank that has weathered the storm is bunq. Like other challengers, bunq is making losses – expected to run to around €14m (£11.96m) in 2020. However, CEO Ali Niknam has said he can fund these losses via the profit from TransIP, a company he owns that provides domain names to businesses. Notably, bunq survived the crisis without any need for layoffs, while user deposits surged to €654.6m (£559m). “In the first half of 2020 only, user deposits have doubled, which we are very proud of – our users trust us with their money and savings even in those difficult times, and it clearly shows that online banking is the future,” says Urban. “We’ve managed to keep on growing, opening our brand new Rotterdam office earlier this year and expanding our mortgage investment, and we have high hopes when it comes to the future.”


Shifting consumer behaviour Part of the challenge for neobanks has been adapting to a shift in consumer behaviour. Throughout the pandemic, people have mostly stayed at home. They’ve stopped commuting, made fewer small discretionary purchases, and definitely stopped going abroad.


“Public transportation went down almost to zero in April last year,” says Sandrock. “The average purchase volume at some grocery stores grew by about 200%, but the total number of purchases went down pretty significantly.”


This has posed a problem for banks like Monzo, which, despite efforts to take on the incumbents, have generally been used as a secondary bank account. Only about 30% of users get their salaries paid directly into their Monzo account, and the average customer deposit in February 2020 stood at just £359. To put it another way, a typical Monzo user might use their card to swipe in and out of public transport, or to buy a coffee on their way into work. They might also use it while travelling internationally, attracted by the bank’s promise not to block their card or add any fees onto the exchange rate.


Although the bank has made some attempts to diversify its revenue streams, as per its paid-for premium account Monzo Plus, it’s not surprising that the pandemic took a toll on its valuation. As Monzo admitted in a July 2020 report: “Our revenue streams have been significantly impacted by the Covid-19 pandemic and resulting macro- economic uncertainty. Regulatory reviews will also lead to stricter financial crime requirements.” That said, while Europe’s challenger banks are under significant pressure, they’re also agile. This is a particular strength at a time of such uncertainty, allowing banks to roll out new features in response to changing circumstances without delay.


Future Banking / www.nsbanking.com


One of bunq’s most popular products is the ‘Green Card’, a premium card costing €99 (£84.54) a year. For every €100 (£85.40) the customer spends, bunq plants a tree on their behalf. Neon has also launched a tree-planting initiative, debuting ‘neon green’ in November 2020. Other challengers have launched pandemic-specific features, such as Revolut’s in-app donation button that allows customers to donate to the Trussell Trust, a British food bank charity.


“It’s a great advantage that fintechs have a higher degree of digitalisation in their offering – it makes them very attractive compared with the established banks.”


Jörg Sandrock, neon


Features like these are particularly appealing to a younger, socially conscious demographic, and have the advantage of being pandemic-proof. A focus on environmental and social governance (ESG) issues may become a USP for challenger banks, helping them build trust with customers post-Covid. “We’re very much a bank for everyone’s daily needs, not just for travelling or small online purchases,” emphasises Urban. “We’re constantly introducing features that save time, money and CO2 for our users every step of the way. We’re going to keep our focus on providing the best day-to-day banking while also keeping it simple, and that seems to be the key to grow during the current crisis.” Throughout the pandemic, headlines about challenger banks have been split down the middle, with some pronouncing the decline of challenger banks and others heralding a bright new era for fintech businesses.


The truth is probably somewhere in between. Through disrupting business as usual, the crisis has tested their adaptability and may push them in surprising new directions. ●


90% Raconteur


Jörg Sandrock, CEO of neon.


The drop-off in people’s usage of challenger banks at the start of the first UK lockdown, compared with 60% for traditional banks.


17% YouGov 13


The percentage of Brits surveyed who said challengers are as reliable as traditional institutions.


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