What we’re thinking: Looking back at the disruptors from a decade ago and where they are now might help us understand what to expect in the future, per CNBC.
The original disruptors: Ten years ago, the idea of handling financial and investment affairs completely online was nearly unheard of. But then a revolution happened within the wealth management space—the creation of all-digital robo-advisors and investment platforms.
Although these startups were innovative, they couldn’t outcompete the larger incumbents, which were able to co-opt the technology, and also do it on a much bigger scale and more cost-effectively.
Today’s disruptors: Those wealth management startups look similar to another group of major disruptors: neobanks, which similarly have been pushing digital banking to the next level. Still, incumbent banks aren’t far behind. Goldman Sachs offers digital bank Marcus and JPMorgan offers digital bank Chase. But neobanks’ efforts to scale and the cost of scaling differ from the effort and cost for incumbents.
Venture funding cools: Neobanks now face an additional challenge. After last year’s funding boom, venture capitalists are putting the heat on them.
Startup valuations are also down. Neobanks that were looking to go public may end up putting that plan on the back burner until the markets rebound.
The big takeaway: Neobanks must spend their money prudently to make it through tougher times. They need new products that will help them to stand out in a saturated market. We expect them to challenge incumbent banks on more niche offerings and personalization. Neobanks that are running out of money and lack differentiation need to consider stronger partnerships. Or, with their valuations lower than ever, getting bought out by a midsize or large bank with plentiful resources might not be such a bad prospect.