Neobanks Target Profit: Six Steps for Traditional Banks to Stay Competitive

The financial landscape is rapidly evolving. While competition between established financial institutions and neobanks historically centered on customer acquisition, particularly deposit accounts, a significant shift is underway. As U.S. neobanks mature and global players enter the market, the battleground is moving from pure growth to profitability, intensifying the competitive pressure on traditional banks and credit unions.

According to Christoph Stegmeier, Senior Partner at Simon-Kucher & Partners, neobanks are already capturing a substantial share of new customers globally, with 30% to 40% of acquisitions. Furthermore, nearly one in four primary banking relationships worldwide are now held with a digital provider.

Despite this shift in customer relationships, traditional institutions have largely maintained their revenue streams, with neobanks currently accounting for only about 5% of financial services revenue, as highlighted in Simon-Kucher’s Global Neobanking Study 2026.

The Emerging Revenue Threat

Stegmeier warns that this dynamic is set to change dramatically over the next five years. Neobanks are poised to transition from a singular focus on user growth to targeting more profitable segments of banking, a trend already observed in other global markets that will increasingly impact the U.S. While traditional institutions aren’t facing an immediate collapse, the study indicates a steady erosion of market share is likely as digital players continue to scale their operations.

Adding to this potential shift, the current regulatory environment in Washington appears favorable towards granting full bank charters to neobanks, which would empower them with a broader range of banking services.

For traditional banks and credit unions, this intensifying competition necessitates a strategic shift. Stegmeier suggests drawing lessons directly from the neobanks’ playbook to adapt and thrive.

Key Insights for Financial Institutions:

• Stronger Digital Players: The neobank sector has seen consolidation, but surviving entities are generally stronger, poised to deepen customer relationships and profitability.
• Global Expansion: Latin America leads in neobanking growth, with Brazil’s Nubank already securing conditional U.S. approval for a national bank charter.
• Erosion of Primacy: Neobanks are accelerating the decline of the traditional primary banking relationship model, questioning how far this trend will extend.
• Regional Banks at Risk: Many regional banks face a risk of losing relevance and market share as neobanking growth continues to accelerate.

U.S. Neobanks Poised for Growth

The U.S. neobank sector has lagged behind its global counterparts in terms of power and influence. Stegmeier attributes this to the fragmented U.S. market, which offers thousands of banking choices, and a reliance by many U.S. neobanks and fintechs on interchange income.

Stegmeier describes U.S. neobanks as “lazy,” primarily replicating traditional banking products with enhanced user experiences, which made growth relatively easy without building strong interest-producing balance sheets. While 75%-80% of global neobank revenues stem from interest income, U.S. neobanks often generate only 20%-30% from this source. However, this is expected to change significantly over the next five years.

International Neobanks Heat Up U.S. Market

Foreign neobanks are entering the U.S. market with ambitious plans and comprehensive product offerings. Beyond Nubank’s charter, Revolut, already active in the U.S., reportedly plans to acquire a U.S. bank rather than pursuing a national charter directly.

These global players have extensive product roadmaps for the U.S. Nubank’s initial focus includes checking accounts, credit cards, unsecured personal loans, and digital asset services. Revolut is already exploring a private banking strategy and is anticipated to venture into U.S. lending.

Intriguingly, Stegmeier suggests that neobanks might even open physical branches in the U.S. Despite their digital-first nature, he notes that American consumers still perceive value in branches, especially for services like private banking. A Revolut branch in the U.S., for instance, wouldn’t be a complete surprise.

Wealth Management: The Next Frontier

Affluent customers represent a prime target for neobanks due to their demand for deposits, investments, and credit. Canada’s Wealthsimple, founded in 2014, demonstrates this potential. Targeting affluent individuals with a tiered subscription model, it now serves over three million Canadians with a wide array of services including deposits, investments, mortgages, advice, and even gold and crypto.

“I think we’ll see neobanks in the U.S. going after affluent customers more and more,” Stegmeier predicts.

Six Steps for Traditional Banks to Counter Neobank Competition

The Simon-Kucher report outlines actionable strategies for traditional financial institutions to navigate and compete in this evolving landscape:

1. Adopt a Growth-Hacking Mindset with Constant Experimentation

Neobanks excel at rapid, small-scale testing to optimize marketing efforts, deploying new initiatives within days, a stark contrast to the weeks often required by traditional banks. Referral programs are particularly potent drivers of neobank sign-ups, often powered by sophisticated email strategies. A notable example is Wealthsimple’s unique lottery, where various customer actions, including referrals, offer entries to win a $3 million Vancouver home.

2. Leverage Gamification for Repeated Engagement

Drawing inspiration from apps like Duolingo, traditional banks can use gamification techniques, such as “streaks,” to increase engagement with their apps and websites. A South Korean neobank, for instance, offered higher interest rates for customers who consistently moved money into deposit products for 30 consecutive days.

3. Push Product Design Beyond Legacy Banking Norms

In an industry often seen as commoditized, neobanks differentiate by introducing unconventional products and features. Examples include eSIM cards for affordable international data. Banks need to think creatively about non-banking products that would genuinely benefit their customers.

4. Simplify Monetization of Offerings

This involves embracing subscription-based pricing and disciplined bundling of services to clearly articulate customer value. Bank of America’s recently unveiled BofA Rewards program, effective in late May, exemplifies a potential application of this principle. The goal is often to capture a larger share of the customer’s overall financial business, even if individual product margins are smaller.

5. Build a Faster-Moving Organization

Traditional banks are often hampered by slow decision-making processes and committee-driven approaches. Revolut’s “New Bets” program offers a model for agility: small teams (“pods”) receive funding and autonomy to develop new products with minimal corporate governance. The integration of AI for rapid prototyping can further accelerate the development and testing of new ideas.

6. Start Leveraging AI, as Neobanks Already Do

Beyond prototyping, AI can automate relationship management, enabling personalized experiences and scale beyond traditional banking norms. While the largest banks may be on par with neobanks in AI adoption, many smaller institutions are not, creating a significant competitive gap.

Source: Thefinancialbrand.com