To consider fintech as just another distribution channel is a fundamental mistake; Neobanks should change users’ perspectives on money in a more drastic manner

Snapchat filed to IPO earlier this month. If investors do buy into the US$25 billion valuation reportedly being sought by Snapchat’s founders, they’ll likely be paying for the priciest tech IPO to hit the market, perhaps ever. It’s more than double as expensive as Facebook’s IPO, and nearly four times as expensive as Google’s.

Snapchat co-founders are reportedly seeking a US$25 billion or more valuation for their social media company. But there are several reasons to be cautious about jumping in as an investor, and the first one is that  you’ll be paying 62x trailing sales for this company. It drives the company (and potential investors, too) to think more about better monetisation through complimentary products and services.

Two and a half years ago, Mark Zuckerberg announced an unofficial messengers’ race for better and faster monetisation of a customer base by integrating remittances, payments and other fintech-functions. Taking into account that new functions and changes are being introduced every three-six months nowadays, messengers haven’t gone far in the past year. Those (fewer than all) that have managed to integrate payments, made them available just in one country with only basic functions. Clearly, only Chinese WeChat is far ahead of the competition, but like all other solutions – it is local, for all practical purposes.

Also Read: Fintech is driving growth and opportunities in APAC; Don’t get left behind

The neobank ecosystem today

In 2016 neobanks and challenger banks raised more than US$300 million of investments in the last year (at the beginning of 2017 Atom bank alone raised £100M or ~US$125M in one deal). They complement many other fintech verticals, creating many opportunities for M&A deals and partnerships with high level of synergy. From challenger banks side, it is interesting now to observe a trend of demographically targeted neobank creation, like British Monese for expats in London, four online-banks targeting SMB, British Loot and GoHenry, Danish LunarWay and Ernit, American Greenlight, Singaporean YoloLite and Neat from Hong Kong are focusing on “Snapchat generation” users.

Greenlight, a three-year-old, Atlanta-based startup, is trying to solve a problem that any parent of an elementary or junior high school student can well understand: how to give kids money without worrying that they’ll lose it or spend it on something they shouldn’t. It isn’t the first reloadable, prepaid card. MasterCard, Visa and American Express each offer parent-friendly debit cards, among other outfits.

Danish banking app Lunar Way is one of a plethora of startups in Europe attempting to update the retail banking experience with a mobile-first offering too. To get ready for a full launch, Lunar Way is disclosing €4.2 million (US$4.4 million) in new funding. Aiming to build a banking experience for the “Snapchat generation” the startup offers a mobile banking app that lets you open a banking account, receive a debit card powered by MasterCard, get a real-time transaction feed of your spending, view your transactions by shopping category or retailer and more. You also can set saving goals through the app, and pay bills. Ken Villum Klausen, founder&CEO of the company, also told that 85 per cent of its users follow the startup on Snapchat.

Loot, a banking services app pitched at millennials, topped up its seed funding round with an extra £2.5 million (US$3.1 million), taking the total raised this year to £4 million (US$5 million). The growth funding comes five months after the London startup raised £1.5 million (US$1.89 million) to build a banking app for “Generation Snapchat.” Loot is a pre-paid card linked to a money management app that lets people track and gain insight from their spending. The new version of its app will also feature savings tools and targeted offers.

Ernit, is a provider of a digital piggy bank for children has been selected as one of the 10 out of 1,000 companies to attend the prestigious accelerator program Techstars in NYC with help from tech-giants such as Google, Microsoft and Amazon. The company enables parents to teach children how to give, save, and spend money wisely. It consists of an app and a smart piggy bank. The app enables the children to set savings goals and allows parents and others to contribute money.

British GoHenry, which provides a pre-paid debit card to kids and an app to manage their pocket money, has more than 200,000 members and is growing by 10,000 each month. “We’re delighted to give the parents that love our product a chance to be a part of our future success too. We are a business that was built by parents so it’s only natural that it continues to be owned, managed and grown by parents as well,” said GoHenry co-founder and chief operating officer Louise Hill after successful crowdfunding campaign on Crowdcube. “As our economies become increasingly cashless, and as purchasing moves online, children need to be able to manage their money in a digital age,” she added.

Also Read: 25 best fintech events you must attend in 2017

If Asian countries are not so active in terms neobanking movement, but there are two bright startups in this area for Snapchat generation too.

Two up-and-coming neobanks for the Asian Snapchat generation

In March 2016, the new bank Neat, co-founded by former Citibank veteran David Rosa, started testing its technologies and receiving guidance and mentorship. Neat operates from a smart budgeting and savings app with a companion card and uses facial recognition technology to authenticate customers at log-in. While the app is certainly open for anyone to use, the company is specifically targeting university students. Not only do they tend to be early adopters, the company’s market research also revealed that university students tend to need more help with budgeting.

Yolopay (YOLO – you only live once) from Singapore is doing similar product like Simple bank, but for kids and their parents. Traditional and direct banks are often skeptical about neobanks and challenger banks from US and Europe as they claim to be able to copy and introduce “features” of these newcomers and their mobile apps are not legging behind in terms of functionality of the product. In my opinion, differences are rather drastic in most of the cases – apps and solutions from the two parties are as similar as built-for-petrol car fitted with electric engine and Tesla.

A mobile-first paradigm

Firstly, new solutions are built according to mobile-first, not branch-first paradigm, and this approach elevates user experience and product impression to absolutely new level (UX).

Secondly, new players are focused on new market clients (not on the whole market, which is always comprised of current/old clients mostly), that influences their brand positioning, language of communication and perception. These clients, as said, have never been served by traditional banks – by force of age or geographical position, as developing countries are characterised by low level of banking services penetration.

Thirdly, a new level of client service and support is characteristic of newcomers — one may ask any question (literally any question in any sort of language) in Snapchat or via video communication in a manner he asks for advice from a friend, and he will be answered immediately.

Also Read: Infographic: Why China is the world’s best fintech market

To consider neobanks as another distribution channel or cost cutting possibility is a fundamental mistake. To be purely online service or a traditional company, selling certain product via online channels, are two absolutely different things.

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