
Vertical Neobanks - kunle
https://kunle.app/march-2020-vertical-banks.html
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tixocloud
As a banking strategist, neobanks are what we're mostly concerned with vs
regular challenger banks. The primary reason is the disintermediation from the
customer through a particular service. Customer touchpoints for purchases and
services are far more frequent than reviewing your finances and with more
automation, banks/financial services are being pushed further into the
background, which means the data that we receive to learn about customers
becomes worse and worse.

~~~
kunle
How would you define the difference between neobanks and regular challenger
banks.

Agree with this comment "the data that we receive to learn about customers
becomes worse and worse"

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tixocloud
Sorry - perhaps there is little difference if any between neobanks vs regular
challenger banks. Neobanks would be digital-only type banks while regular
challenger banks are heavily skewed digitally but have the backing of an
existing incumbent bank.

Where we see and place all our analysis efforts are on companies like Google,
Amazon, Apple, etc. From what we can see with Alibaba, since they own the
contact points for the both the customer and retailer, they have data to gauge
financing needs and more importantly risk.

You see banks like RBC starting the conversation earlier in the journey with
their investments in various startup spinoffs where it's focused on the 'why'
behind the financing (i.e. finding a home, buying a car, starting a business,
etc.) before becoming involved in the financing portion later down the line.

~~~
kunle
Got it. In that frame, Square and Varo Money would be challenger banks (that
got started as neobanks) because they now have licenses. Chime, Sofi and
others would be neobanks, correct?

Never thought of this distinction, but I don't hate it.

I think a material distinction between Apple/Amazon etc and Alibaba is that in
Alibaba's operating environment there wasn't a strong digital financial
ecosystem to compete with (not to mention that they were a national champion).
I'm not convinced they all can do exactly the same thing Alibaba did. Apple is
edging it's way there and doing it in an original way, but they're not doing
it in a way that is in line with what I described at all (for example, if
Apple were pursuing a vertical neobank strategy, they would launch a banking
service for appstore developers, who AFAIK are the only customer segment for
whom Apple is an income driver). For Amazon it could be sellers, for Google it
could be Adsense advertisers, and I'm not sure what the equivalent would be
for Facebook.

I also think a reason these folks havent gone the lending route (other than
Amazon) is because I don't know if its believable that their data could be
differentiated for lending purposes. Just a thought.

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sandGorgon
quite some time back, there was a position statement by QED Investors (the
guys who were the first investors in CreditKarma) -
[https://s3.amazonaws.com/qed-
uploads/The+Copernican+Revoluti...](https://s3.amazonaws.com/qed-
uploads/The+Copernican+Revolution+in+Banking+-+Publication+Version.pdf)

It talks about how branch based banking will split into various parts - one of
which will be distribution of fintech products by players like Instagram,
Facebook, etc. Essentially commoditizing fintech.

But simultaneously, vertical neobanks/fintech would be created by those who
can create the best of products in a particular niche. Instagram is not a
niche. Uber could be (however has failed spectacularly in the past -
[https://www.theverge.com/2017/8/8/16112498/uber-phase-out-
xc...](https://www.theverge.com/2017/8/8/16112498/uber-phase-out-xchange-car-
leasing-losses) ...but still has ambitions in the future
[https://www.theverge.com/2017/8/8/16112498/uber-phase-out-
xc...](https://www.theverge.com/2017/8/8/16112498/uber-phase-out-xchange-car-
leasing-losses))

So im wondering what's the future of fintech and lending. Do dating apps and
social apps plugged to bank backends become the only viable fintech play (like
Apple Card and Goldman Sachs) ? A16Z has been plugging this theory -
[https://a16z.com/2020/01/21/every-company-will-be-a-
fintech-...](https://a16z.com/2020/01/21/every-company-will-be-a-fintech-
company/) \- Or will verticalized fintech still win out like QED says.

IMHO Spotify and Instagram are not verticalized.

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kunle
What does this mean: "IMHO Spotify and Instagram are not verticalized."

I don't think _every_ app becomes a vertical neobank. I think apps that
already have a moneymoving financial relationship with some niche, have a real
opportunity to serve that niche very well. Specifically - if you're a material
source of income for some niche, or if you're a source of growth for some
niche, then you have a real shot at the vertical neobank strategy.

~~~
sandGorgon
I mean instagram and Spotify have too broad a base. You wrote this - _You can
think of a vertical neobank as a checking account + debit card product,
focused on a specific customer segment (rather than focused on a broad swath
of “consumers”)_

I'm wondering if that holds for Instagram as a vertical neobank. But I like
your current statement " _I think apps that already have a moneymoving
financial relationship with some niche, have a real opportunity to serve that
niche very well._ " .

So then do you think Instagram will be a successful fintech ? And I'm
wondering why Intuit could not become a neobank without acquiring CreditKarma?

~~~
kunle
Got it.

For Instagram; they have creators (who create content, make filters etc) who
already get paid by Instagram when that content is sold. No idea how large
that business is, but it's a case where instagram is impacting the moneyflow.
They would definitely not be a vertical neobank for consumers. Way too broad.

For Spotify - they are in the money flow for artists. The vertical neobank
would be for those artists getting paid.

