The neobank model has, through the past several years, taken two paths as FinTechs bring accounts, cards and other digital-first financial offerings to customers.
There are the FinTechs that partner with banks to use the latter’s licenses to bring new products to markets, and there are other firms that opt to gain their own banking licenses or even acquire banks.
With banking licenses in hand — and a smoother path toward getting those licenses amid a push to overhaul the application process — more FinTechs may opt for the latter strategy.
But in the meantime, the stats, and the commentary, from earnings season, and the (reported) readying of Chime to go public all speak to growth regardless of the models.
There are several players that have taken banks into the fold, owning financial institutions (FIs) that give them banking licenses.
Almost four years ago, SoFi bought Golden Pacific Bank, which in turn gave the platform the keys to developing a banking subsidiary. In the company’s latest results, which were reported last month, management noted on the conference call with analysts that since obtaining its banking license in 2022, the company has notched $26 billion in deposits. In the latest reporting period, the installed base of 10 million individual customers was up 34% year over year and a multiple of 10x through the past five years. Fourth-quarter new additions were 785,000 members.
The company’s financials noted that 90% of SoFi Money deposits (inclusive of checking and savings and cash management accounts) come from direct deposit members, with more than half of newly funded SoFi Money accounts setting up direct deposit within 30 days. Credit card products grew 14% year on year to more than 279,300.
LendingClub’s acquisition of Radius Bancorp and the formation of LendingClub Bank has seen its deposit base grow by 24% through the year, and commentary on the earnings call detailed that its LevelUp savings offering has brought in $1.2 billion in deposits since the August 2024 launch spanning 27,000 accounts. Overall membership has grown, and management also said on the call that the FinTech company would look to introduce new checking offerings.
Square/Block, which is due to report earnings this week, began its banking operations (and, notably, business banking) in March of 2021. Investor materials have noted that the company’s drive to “bank its base” has borne fruit, as inflows per active consumers were up 9% year over year; business lending as depicted through the latest 10-Q said that Square Loans held for sale were $417.3 million in the latest quarter.
Varo, which in 2020 became the first nationally chartered all-digital bank, housing deposit accounts and offering credit cards, with a reported 7 million users.
Chime is widely expected to go public this year, having submitted a confidential filing with the Securities and Exchange Commission (SEC) late last year. The company partners with Bancorp Bank, N.A. and Stride Bank, N.A., which hold members’ deposits, and introduced checking and savings accounts back in 2016 and credit cards in 2020 and earned wage access offerings last year. The FinTech has a reported 22 million members.
Revolut, as reported here earlier this month, has been eyeing a push into private banking. The company, which has a European Union banking license, and offers banking services in the U.S. through partnerships with Sutton Bank and Cross River Bank, had said in its latest (2023) annual report that the number of retail customers was up 45% year over year to 38 million, and where customer balances (including those held by partner banks) had surged by 5 billion euros to 18.2 billion.
As to how the regulatory environment may evolve in the months ahead: The recent freeze on all new rulemaking at various regulatory agencies — including greater scrutiny on bank/FinTech partnerships may open up the spigots for more joint activity. PYMNTS also noted last week that there’s been a growing drumbeat for an easier path toward de novo, or new, bank creation. At a recent Capitol Hill hearing, GOP Rep. French Hill of Arkansas, who chairs the House Committee on Financial Services, said there have been only 82 new bank charters granted in the past decade and a half.
