In 2021, neobanks such as Chime and Varo were seeing explosive growth. With digital-first infrastructure that promised to deliver improved convenience and security to unbanked and underbanked individuals around the world, neobank accounts shot up from 23.3 million accounts to 33.5 million by the end of 2021.
The market for fintechs obviously looks very different just a year later—and there are troubling signs that neobanks are getting hit harder than most, to the point that experts are wondering if neobanks weren’t a revolution in finance but just a flash in the pan.
Counted among the warning signs for neobanks is Chime’s confirmed delay of its IPO due to a decline in overall fintech stock valuations. Meanwhile, Varo reports that it may run out of money entirely by the end of 2022, with operational costs considerably outweighing income. Given setbacks like that, more accounts won’t necessarily save the biggest names in neobanks.
But, of course, declining valuations have affected fintechs of all shapes and sizes. Just what killed the neobank specifically? Among other things, interchange has proven to be a poor solution for revenue, particularly with the rise of BNPL and the proliferation of merchants’ mobile apps that soak up available funding.