Name: Evaluating neobanks and the key questions you should be asking
Uploaded: 2022-01-28T16:38:12.220Z
Duration: 328.05

Neobanks.vtt

English

{{00:00:30}}
Neobanks are hot stock right now.

{{00:00:33}}
Square's $29 billion acquisition
of Afterpay in August of this

{{00:00:37}}
year is just one example of how
the future of finance can be

{{00:00:40}}
really exciting for fintechs.

{{00:00:42}}
We spoke with Peggy Mangot from
PayPal Ventures, and Jeremy Balkin

{{00:00:46}}
from JP Morgan who gave us their
take on what's essential when

{{00:00:50}}
evaluating neobanks to invest, what
concerns these new models bring to

{{00:00:54}}
traditional banking institutions,
and what the view consumers and

{{00:00:57}}
small businesses have on neobanks.

{{00:01:06}}
So the first one is
surrounding monetisation.

{{00:01:09}}
So if you are evaluating a neobank,
whether you're a founder that

{{00:01:13}}
wants to start one, you want
to invest in one, or you're an

{{00:01:17}}
employee that might work there.

{{00:01:18}}
The first area that you need
to evaluate is monetisation.

{{00:01:23}}
So what is the monetisation
plan for the neobank?

{{00:01:25}}
Is itsubscription?

{{00:01:27}}
Is it interchange?

{{00:01:28}}
Is it an affiliate or a tipping model?

{{00:01:32}}
So really understanding the
monetisation model and as an aside,

{{00:01:37}}
the rise of subscription in neobanks.

{{00:01:41}}
We've seen a rise in subscription as
the monetisation vehicle for neobanks.

{{00:01:45}}
So I don't see that trend,
I see that trend continue.

{{00:01:55}}
So how big is the total
addressable market?

{{00:01:57}}
Some of these neobanks are really
going after a subset of the mass

{{00:02:01}}
market, a cohort, so to speak.

{{00:02:04}}
And so you want to understand
how big is that market?

{{00:02:08}}
How many competitors are kind of
competing for the same customer.

{{00:02:12}}
What percentage are you
going to need to have a

{{00:02:15}}
successful profitable platform?

{{00:02:23}}
What is their hypothesis plan?

{{00:02:25}}
The data showing that how they're
going to efficiently acquire at scale.

{{00:02:32}}
Right?

{{00:02:33}}
Because the market is getting very
crowded with traditional banks, mass

{{00:02:38}}
market neobanks, like Chime and Varo.

{{00:02:40}}
And now these emerging vertical
neobanks that will also be competing

{{00:02:46}}
for Mindshare and other customers.

{{00:02:55}}
So yes and no.

{{00:02:57}}
I'm of the view I think the more
competitors the better, I think

{{00:03:02}}
it keeps everybody healthy and I
think it's good for the consumer.

{{00:03:07}}
I think there'll be consolidation
in that space of a time, I think

{{00:03:11}}
the winners will either get
licensed or partner with someone

{{00:03:14}}
who is, which means probably been
consumed by a traditional bank.

{{00:03:18}}
And I think the challenge for the
neo community will be, can they go

{{00:03:21}}
from being a beautiful digital wallet
solution to being a profitable,

{{00:03:25}}
sustainable business model?

{{00:03:26}}
That's not just moving money from
wallet A to wallet B, but can they

{{00:03:30}}
provide other financial services
that customers wants, and therefore

{{00:03:34}}
make as a sustainable business model?

{{00:03:35}}
And then go from the neo to the bank.

{{00:03:44}}
You've seen a clause of consumers,
mostly younger consumers, gen

{{00:03:47}}
Z, younger millennials who have
rightly embraced the neos because

{{00:03:53}}
essentially their financial need
is a digital wallet solution.

{{00:03:55}}
The complexity of a mortgage, the
complexity of insurance, complex

{{00:03:59}}
financial products and wealth
management haven't necessarily

{{00:04:02}}
been their top priority.

{{00:04:04}}
It's just let me have an account.

{{00:04:05}}
Let me move that money
quickly and efficiently, and

{{00:04:08}}
dare I say, in a fun way.

{{00:04:10}}
As those younger consumers become more
financially complex and have different

{{00:04:13}}
needs, while the challenge will be
whether the neos can evolve with it or

{{00:04:18}}
a more traditional bank that have spent
billions of dollars on improving the

{{00:04:23}}
customer experience can actually solve
that for them, hence the convergence.

{{00:04:27}}
From a business perspective, I
think it's somewhat different,

{{00:04:30}}
albeit a similar premise, which
is small businesses in particular

{{00:04:35}}
value simplicity, speed of payments,
diverse method of payments,

{{00:04:39}}
the ability to send and receive
in any currency in real time.

{{00:04:42}}
So hence the fintechs, just like
the neobanks, have had an impact

{{00:04:46}}
for younger consumers have also
positively impacted small businesses.

{{00:04:50}}
But again, as a small business has
become more complex and the needs

{{00:04:53}}
become more global, maybe need
different currencies, more financial

{{00:04:57}}
support, trade finance, et cetera.

{{00:04:59}}
I think naturally that push
towards the traditional banks

{{00:05:02}}
become more sustainable.

{{00:05:05}}
There are a couple of really
interesting SMB related sort of

{{00:05:10}}
fintech banks out there that we like
a lot and will have more to say in

{{00:05:15}}
due course, but I think the ones
that are closer to the bank rather

{{00:05:19}}
than the neobank will be the winners.

Square's $29 billion acquisition
of Afterpay in August of this

year is just one example of how
the future of finance can be

We spoke with Peggy Mangot from
PayPal Ventures, and Jeremy Balkin

from JP Morgan who gave us their
take on what's essential when

evaluating neobanks to invest, what
concerns these new models bring to

traditional banking institutions,
and what the view consumers and

So the first one is
surrounding monetisation.

So if you are evaluating a neobank,
whether you're a founder that

wants to start one, you want
to invest in one, or you're an

The first area that you need
to evaluate is monetisation.

So what is the monetisation
plan for the neobank?

So really understanding the
monetisation model and as an aside,

We've seen a rise in subscription as
the monetisation vehicle for neobanks.

So I don't see that trend,
I see that trend continue.

So how big is the total
addressable market?

Some of these neobanks are really
going after a subset of the mass

And so you want to understand
how big is that market?

How many competitors are kind of
competing for the same customer.

What percentage are you
going to need to have a

The data showing that how they're
going to efficiently acquire at scale.

Because the market is getting very
crowded with traditional banks, mass

And now these emerging vertical
neobanks that will also be competing

I'm of the view I think the more
competitors the better, I think

it keeps everybody healthy and I
think it's good for the consumer.

I think there'll be consolidation
in that space of a time, I think

the winners will either get
licensed or partner with someone

who is, which means probably been
consumed by a traditional bank.

And I think the challenge for the
neo community will be, can they go

from being a beautiful digital wallet
solution to being a profitable,

That's not just moving money from
wallet A to wallet B, but can they

provide other financial services
that customers wants, and therefore

You've seen a clause of consumers,
mostly younger consumers, gen

Z, younger millennials who have
rightly embraced the neos because

essentially their financial need
is a digital wallet solution.

The complexity of a mortgage, the
complexity of insurance, complex

financial products and wealth
management haven't necessarily

Let me move that money
quickly and efficiently, and

As those younger consumers become more
financially complex and have different

needs, while the challenge will be
whether the neos can evolve with it or

a more traditional bank that have spent
billions of dollars on improving the

customer experience can actually solve
that for them, hence the convergence.

From a business perspective, I
think it's somewhat different,

albeit a similar premise, which
is small businesses in particular

value simplicity, speed of payments,
diverse method of payments,

the ability to send and receive
in any currency in real time.

So hence the fintechs, just like
the neobanks, have had an impact

for younger consumers have also
positively impacted small businesses.

But again, as a small business has
become more complex and the needs

become more global, maybe need
different currencies, more financial

I think naturally that push
towards the traditional banks

There are a couple of really
interesting SMB related sort of

fintech banks out there that we like
a lot and will have more to say in

due course, but I think the ones
that are closer to the bank rather

Expert Insight

Neobanks are here to stay. First, as an easy payment solution for new customers' payment demands. In the future, with more complex participation. What questions should you be asking when looking to invest in neobanks and what is the general perception financial institutions, end-users, and small businesses have about them? Watch two experts from within the industry sharing their opinions on the matter. 

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Peggy Mangot

Operating Partner

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Jeremy Balkin

Head of Fintech and Innovation

What is the key questions and areas of interest a venture capitalist should ask when looking for a neobank? Peggy Mangot from PayPal Ventures gives us the three main areas she is curious about.

Evaluating neobanks

Is it a moment of excitement or concern for traditional financial institutions? Jeremy Balkin explains why he thinks convergence will be the future for Fintechs and banks.

Should traditional banks be concerned?

Will neobanks be able to evolve together with customers as their financial necessities get more complex? Jeremy Balkin thinks the winners will be less close to the 'neo' and more to the 'bank'.