Neobanks’ Profit Drive: Six Essential Steps for Traditional Banks to Compete

The competitive landscape within financial services is undergoing a dramatic shift. Initially, the contest between traditional banks and emerging neobanks centered on customer acquisition, primarily for deposit accounts. However, as U.S. neobanks mature and a steady influx of international digital players enter the market, the battle lines are changing, and the stakes for revenue are escalating.

Christoph Stegmeier, Senior Partner at Simon-Kucher & Partners, highlights the growing influence of neobanks globally. “We’re already seeing 30% to 40% of acquisitions going to neobanks globally,” Stegmeier states. He adds that nearly “one in four primary banking relationships now sits with a digital player,” underscoring the significant migration of customers to digital platforms.

The Emerging Revenue Threat from Digital Banks

Despite these substantial customer shifts, the bulk of financial services revenue has largely remained with incumbent institutions, with neobanks currently capturing only about 5% of the total, according to Simon-Kucher’s Global Neobanking Study 2026. However, this dynamic is poised for a major change.

Stegmeier predicts that over the next five years, neobanks will strategically pivot from a pure growth focus towards more profitable banking segments. This transition is already well underway in other global regions and is expected to become increasingly pronounced in the U.S. While traditional banks aren’t facing an immediate collapse, the study warns of a “steady erosion of market share” as agile digital players continue to expand and scale their operations.

Adding to this competitive pressure, the current regulatory climate in Washington appears to favor granting full-fledged bank charters to neobanks, which would empower them with a broader range of financial services capabilities.

Key Trends Reshaping the Banking Industry

• Stronger Digital Players: The landscape of neobanks has seen consolidation, resulting in fewer but stronger entities ready to cultivate deeper, more profitable customer relationships.
• Global Expansion: Latin America leads global neobanking growth, with Brazil’s Nubank receiving conditional U.S. approval for a full-service national bank charter, signaling intensified international competition.
• Eroding Primacy: Neobanks are accelerating the decline of the traditional “primary bank” model, challenging customers’ loyalty to a single institution.
• Regional Bank Risks: Many regional banks face a risk of declining relevance, potentially becoming casualties of the ongoing growth of digital-first challengers.

U.S. Neobanks: Catching Up and Evolving

Historically, the U.S. neobank sector has lagged behind its international counterparts in overall power and impact. Stegmeier attributes this to the highly fragmented U.S. market, which offers thousands of banking choices, and a prevalent reliance by many U.S. neobanks and fintechs on interchange income rather than interest-bearing products.

“For lack of another word, I think the neobanks were lazy,” Stegmeier remarks. “They were just building out traditional banking products with a better user experience. It was a bit too easy to grow.” Consequently, U.S. neobanks generate a smaller portion of their revenue from interest income (20%-30%) compared to the global average (75%-80%). However, this trend is expected to reverse significantly within the next five years as U.S. digital banks mature their business models.

International Players Set to Intensify U.S. Market Competition

Foreign neobanks are entering the U.S. market with ambitious plans and comprehensive product offerings. Beyond Nubank’s charter, Revolut, already operating in the U.S., has confirmed plans to pursue a U.S. bank charter. These global players are not just bringing basic accounts; Nubank’s initial U.S. strategy includes checking accounts, credit cards, unsecured personal loans, and digital asset services. Revolut is exploring private banking and is expected to venture into U.S. lending.

Surprisingly, some neobanks may even consider a physical presence. While rare globally, Stegmeier acknowledges that U.S. customers still perceive value in branches. He wouldn’t be surprised to see a Revolut branch, particularly to serve affluent private banking clients, signaling a hybrid approach to digital banking.

Wealth Management: The Next Frontier for Digital Challengers

Affluent customers present an attractive target for neobanks due to their demand for deposits, investments, and credit. Canada’s Wealthsimple, for example, successfully targets this segment with a tiered subscription model, serving over three million Canadians with diverse financial products from deposits and investments to mortgages, advice, and even gold and crypto. Stegmeier anticipates, “I think we’ll see neobanks in the U.S. going after affluent customers more and more,” indicating a direct challenge to established wealth management services.

Six Essential Strategies for Traditional Banks to Counter Neobank Competition

To effectively compete and thrive amidst this evolving landscape, traditional financial institutions must proactively adopt strategies that mirror the agility and innovation of their digital counterparts. Simon-Kucher’s report outlines six crucial steps:

1. Adopt a Growth-Hacking Mindset

Banks should embrace continuous experimentation and rapid iteration, similar to neobanks that conduct hundreds, even thousands, of small tests to optimize marketing. New initiatives should launch in days, not weeks. Referral programs are particularly potent drivers of neobank sign-ups, with examples like Wealthsimple’s large-scale lottery campaign for referrals demonstrating creative engagement.

2. Use Gamification for Repeated Engagement

Inspired by successful apps like Duolingo, banks can integrate gamification into their digital platforms to increase customer engagement. Features like “streaks” for consistent app usage or incentives for daily deposit movements can build loyalty and interaction. One South Korean neobank offered higher interest rates to customers who moved money into deposit products for 30 consecutive days.

3. Push Product Boundaries Beyond Legacy Banking

To escape the commoditization of banking, institutions must innovate by adding non-traditional products and features. International neobanks have introduced services like eSIM cards for travelers. Banks need to envision what non-banking products would genuinely resonate with their customer base and offer unique value.

4. Simplify Monetization of Offerings

Focus on clear, subscription-based pricing and disciplined bundling of services. This approach helps customers understand the value proposition, potentially leading to a larger share of their overall financial business, even if individual product margins are smaller. Bank of America’s BofA Rewards program, set to launch in late May, represents a step towards this principle.

5. Build a Faster, More Agile Organization

Traditional banks must overcome slow decision-making processes and committee-driven structures. Emulate agile models like Revolut’s “New Bets” program, where small, autonomous teams are empowered with funding and freedom to rapidly develop new products with minimal corporate governance. AI-powered prototyping can drastically accelerate the development and testing of new ideas.

6. Start Leveraging AI Extensively

Neobanks already extensively utilize AI for rapid prototyping, personalization, and scaling relationship management. While larger traditional banks may match neobanks in this area, most institutions below the top tier need to significantly enhance their AI capabilities to automate processes, personalize customer experiences, and achieve new levels of operational efficiency.

Steve Cocheo is the Senior Executive Editor at The Financial Brand, bringing over 40 years of experience in financial journalism. Connect with Steve on LinkedIn: linkedin.com/in/stevecocheo.

Source: thefinancialbrand.com