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Vertical Neobanks (kunle.app)
17 points by kunle 8 days ago | hide | past | web | favorite | 8 comments

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.

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"

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.

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.

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...

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... ...but still has ambitions in the future https://www.theverge.com/2017/8/8/16112498/uber-phase-out-xc...)

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-... - Or will verticalized fintech still win out like QED says.

IMHO Spotify and Instagram are not verticalized.

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.

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?

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.

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