Profit vs. Growth, Which Strategy is Right for UK Neobanks?

The UK is home to several digital-first challenger banks that are valued at more than US$ 1 billion. Examples include Zopa, Monzo, Starling, and Revolut. Many digital banks have been following a growth-first and profit-later strategy. This can be quite a problem, as a recent Simon Kucher and Partners report estimated that less than 5% of Neobanks worldwide had achieved break-even.

The Truth?

Though Starling, Zopa, and Revolut have reached profitability according to their published financial statements, none are publicly listed, so they aren't obligated to publicize earning reports. Hence, it isn't easy to gauge exactly how well they perform in revenue and profit.

Starling reported a 600% jump in revenue from November 2020 to March 2021. It reached £97.6 million

Revolut shared that for 2020, it saw a 215% yearly increase in gross profits as it reached £123 million.

FinTech was valued at $33 billion last year and has raised $1.7 billion to grow its footprint in the Middle East, Europe, South Asia, and Latin America.

Zopa CEO Jaidev Janardana stated that the company had achieved profitability within 21 months of attaining its UK banking license. He said, "Today's news makes Zopa one of the fastest digital banks to achieve profitability ever and reinforces our thesis on the importance of sustainable growth as a catalyst for accelerated product and market expansion."

How Can Neobanks Turn Themselves Around?

If Neobanks want to turn themselves around, they must act fast and consider the following options for the short term.

They should slow down customer acquisitions by reducing the rewards being offered and stopping nee-fee products and services that can be quite expensive.

They should also drive-up deposits and transactions among existing users to boost revenues.

Neobanks should also seek revenue enhancements via new lending products like buy now, pay later, and credit cards.

Strategies That Can Help Neobanks

Neobanks can also target a niche that the mainstream providers do not rightly serve. Financially marginalized consumers, young people, families, freelancers, microbusinesses, and small companies can be good options.

They should also consider picking a growing value pool like gig workers who might have varied incomes. As the number of gig workers has grown considerably in the last few months and will continue to grow in the future, it is a reliable option.

They should also invest in commoditized financial products that give more financial freedom to users. For instance, a feature allows users to switch past payments to any card they wish.

The Neobanks must also focus on creating a unique brand identity and ensuring that their app is different and easier to use than the rest. The user interface can make or break the entire customer experience, so it should be usable for people of all ages, including young kids and older adults.

Neobanks should also consider making offers than stand out from the rest and help it to retain the existing customers and acquire new ones. As always, innovation is the key to attracting and retaining customers.


Previous Post Next Post