A quiet revolution is taking place in the European banking sector. While neobanks were not considered serious competition to traditional banks just a few years ago, the situation has now changed dramatically. According to a recent study by the consulting firm BearingPoint, there are now around 100 (mainly digital) challenger banks in Europe, which have collectively attracted 160 million customers. This represents a fivefold increase since 2019, just five years ago.
What is clear is that neobanks primarily appeal to younger demographics. According to BearingPoint, 40% of neobank users in Europe are under 34 years old. The highest penetration of these digital banks is in Ireland, where 22% of the population holds an account with a neobank, followed by Spain at 17% and Germany at 14%. These are substantial market shares that Revolut, N26, and other neobanks have been able to capture so far.
Four Neobanks Achieve Profitability
Neobanks, which have historically been fueled by large venture capital funding rounds and focused on growth, have now shifted their priorities. While high losses were once accepted in the pursuit of expansion, several players in the industry have now proven they can be profitable. Four European neobanks have reported positive annual results, including Revolut and Starling Bank from the UK, as well as bunq from the Netherlands. German neobank N26 is also expected to become profitable in the second half of 2024.
This demonstrates that some of the leading challenger banks have successfully built sustainable business models. Revolut stands out as the largest neobank, recently achieving a valuation of $45 billion through the sale of employee shares. This valuation places Revolut among the 60 most valuable banks globally, surpassing even major institutions like Deutsche Bank, Erste Group, and Standard Chartered. Additionally, Revolut is aiming for an IPO, which could further boost the momentum of neobanks.
Conclusion
The rapid rise of neobanks across Europe, their ability to attract younger customers, and the increasing number of profitable players in the sector signal a significant shift in the banking landscape. With Revolut leading the charge, the future of digital banking looks bright, and traditional banks will need to continue adapting to keep pace with these agile, innovative competitors.