Neobank News, Noise and Nonsense

Hey everybody, and welcome back to another episode of What’s Going On in Banking. I’m Ron Shevlin, chief research officer at Cornerstone Advisors, and joined today, of course, by my colleague Stacey Bryant.

Stacey, how are you doing?

What’s going on, Ron? I’m great. I just had a birthday a couple of weeks ago, so every time a new year comes around I try to be more intentional about what I do while still having fun. Happy to be here. How are you doing?

Happy belated birthday. Everything’s great on this end.

Summer is winding down. I don’t know exactly when people will be listening to this, but school will probably have started wherever they are. Labor Day always feels like the most depressing time of year to me.

Why? Because it marks the end of the good life. Back to work, back to school traffic, back to buses everywhere. It’s the end of summer, and you look back and think, “What did I actually do this summer?”

You have to recap.

I’ll tell you something I realized this summer: I’ve become a little spoiled by the world we live in.

For my birthday, I had a little gathering at my house and needed to rent tables and chairs. Instead of just picking up the phone, I found myself wishing there were an Uber Eats for equipment rental.

It felt excruciating to call a business and leave a voicemail on an answering machine.

I’m not sure what that says about me or the next generation, but I do see a real need for small businesses to modernize their systems.

And that’s actually a pretty good segue into what we want to talk about today.

Let’s get into the news.

I think this is going to be our “neobank news or nonsense” episode because there are several neobank stories worth discussing.

First up is Revolut, the European neobank.

It launched a promotional campaign aimed at New York City commuters. New customers can get 100% cash back on up to five single-tap MTA rides when they use their Revolut card.

But there’s a catch: the offer is available only to people who open a new account in person with a Revolut ambassador stationed inside subway stations.

Stacey, you’re a New York girl. Born in Brooklyn and raised in Queens, right?

Correct. Born in Brooklyn, raised in Queens.

So can I assume you’ve spent a lot of time on the subway?

Absolutely.

Can you imagine stopping in the subway to open a bank account?

I can’t imagine doing it casually, but if there’s money in it for me and the offer is clear, I might stop. Cash back can get someone to try something, and that’s often how adoption starts.

I still have a hard time seeing this succeed at scale.

I grew up in Queens and spent a lot of time in New York City. When you’re in the subway, you’re trying to catch a train and get where you’re going. You’re not usually thinking, “This is a great time to open a financial account with a person standing on the platform.”

There’s also a trust issue. If someone approached me in a subway station asking me to open an account, my first thought might be, “Is this even legitimate?”

And the reward is only five rides. A daily commuter is probably making 20 or 25 rides a week, maybe more depending on transfers.

I’m curious to see what happens, but I’m skeptical.

I get that, but New York transit has its own culture and community. People sell things, perform music, hand out promotions, and interact with commuters constantly.

The subway is a huge part of daily life across socioeconomic groups. So I can at least understand why Revolut would see it as a place to experiment.

Do I think it becomes a massive success? Probably not. The cash-back incentive is limited, and most commuters are focused on getting somewhere.

Simon Taylor posted about this on LinkedIn and said something I partly agree with and partly disagree with.

He said Revolut is starting small, learning from users, and gathering feedback. I’m less convinced that’s the main story.

The part I agree with is that Revolut still seems to be searching for its ideal customer profile in the U.S.

It’s a massive company, but in the U.S. it keeps twisting the Rubik’s Cube, trying different approaches to see what sticks.

That’s been true of several European neobanks that entered the U.S. market, including N26 and Monzo.

I actually interviewed the U.S. head of N26 when the company was entering the market. I asked him, “What is the great wrong in U.S. banking that N26 is going to fix?”

His answer was essentially, “Mobile banking in the U.S. is terrible, and we’re going to fix it.”

At that point I thought, “You’re probably not going to succeed.”

Mobile banking in the U.S. isn’t universally terrible. Some smaller institutions have weak experiences, sure, but Chase, Wells Fargo, Bank of America, and other large institutions have very capable mobile platforms.

A European neobank may have a better interface, but consumers don’t know that until they try it. And only a limited portion of consumers are constantly opening new accounts simply to experiment.

I think the larger issue is that many neobanks entering the U.S. have struggled to find a defensible niche.

Cornerstone recently published research on niche and vertical-market strategies. I think that is where both incumbent institutions and new entrants are more likely to find sustainable growth.

Which brings us to another niche-related story: Chime’s collaboration with Workday.

Chime announced a new distribution channel through Workday, one of the leading HR and human-capital platforms.

Chime has built a set of workplace financial tools through acquisition. These include earned-wage access, checking and savings products, and financial-planning tools that employers can offer to employees.

And I hate to sound like a negative Nelly here, but I’m skeptical of this one too.

This isn’t the first time a financial provider has tried to use employers as a distribution channel. Historically, it hasn’t been a particularly strong path for banking-product adoption.

And Chime’s core target market is lower- to middle-income consumers. A meaningful portion of that group includes gig workers, side hustlers, and people with nontraditional employment arrangements. Those customers don’t necessarily have employers that use Workday or that are distributing banking products through HR.

The nature of employment itself is changing.

So while Workday has tremendous distribution, I’m not convinced Chime’s product and Workday’s user base line up as well as the headlines suggest.

All right, let me make the case for it.

Workday serves more than 11,000 organizations worldwide, including a large share of the Fortune 500. It sits at the center of payroll, HR, talent management, time tracking, employee engagement, and increasingly financial-management workflows.

That’s a huge distribution platform.

If Chime’s goal is to become a consumer’s primary checking account, this gives them another path into someone’s financial life.

And we’ve talked before about how consumers decide which account is “primary.” Ron, based on your research, what actually makes an account someone’s primary checking account?

There isn’t one universal answer, and it varies by generation.

For baby boomers and, to some extent, Gen X, primary-account status is often tied to where direct deposit goes.

For millennials and especially Gen Z, that relationship is weaker.

A younger consumer may have direct deposit going to a traditional bank but still consider a fintech or neobank their primary financial account because that’s the debit card they use most, the app they open every day, or the provider that helps them manage their financial life.

Roughly a third of Gen Z and millennial consumers in some of our research consider a digital bank, fintech, or neobank to be their primary account provider.

So primary status can come from engagement, product usage, payments, budgeting tools, rewards, or other functions, not just direct deposit.

I agree Workday has incredible distribution. My concern is the customer profile.

Workday employees are often part of larger, more structured employers. Many of those workers likely earn enough and have stable enough employment that they are not Chime’s traditional core customer.

And that’s why I think this collaboration may work.

Think about the generational transition happening in the workforce. Baby boomers are leaving, younger workers are entering, and the expectations around financial services are changing.

Through Workday, employees could potentially manage finances, build credit, save, and add Chime products directly inside a platform they already use.

Meanwhile, Chime gains more information about how customers engage with their financial lives.

From an adoption and engagement perspective, I think there’s something here.

But I also see the risks. Once you combine banking, employment, payroll, and financial data, questions around privacy, cross-selling, and who controls the underlying rails become much more important.

So yes, this could work, but it may also create more friction and regulatory questions.

I’m going to keep taking the other side.

I think Chime has a product problem more than a distribution problem.

What it already offers is good, and Chime has done a strong job with product innovation. But at its core, it is still largely a checking-account provider with features layered around that account.

To grow profitability, it needs deeper lending products. It needs credit cards, personal loans, and other sources of revenue beyond interchange and basic transaction activity.

A new distribution channel doesn’t solve that.

And based on our research, I think Chime may also have a generational issue.

It has done very well with millennials and reasonably well with Gen X, but I don’t see the same adoption among Gen Z.

I’m also not convinced you reach Gen Z most effectively through employers, especially with the continued growth of gig work and the challenges younger consumers are facing in the labor market.

There’s also a growing concern that AI may be affecting entry-level jobs more than established jobs. That could make traditional employer distribution even less relevant for some younger consumers.

Still, I understand your point. Maybe Workday is simply a testing ground. Chime can try the channel, see who adopts, and then refine the product around what it learns.

Exactly. It doesn’t have to be the final strategy. It can be one phase of a larger plan.

Speaking of Chime, there’s another thing they’re doing that caught my attention: their connection with musicians and culture.

I’m an R&B girl at heart, and one artist I’ve been listening to lately is Giveon.

I was on YouTube listening to some of his newer music and came across an interview with Giveon and his mom. They were having a conversation about money, success, and what changed when his career took off.

The Chime logo was sitting in the corner of the video, but they weren’t constantly pitching Chime. It was more of a branded cultural conversation.

That’s interesting because it puts Chime next to artists and voices that younger consumers already care about.

It reminded me of something Credit Karma did a few years ago with a rapper named IDK.

Does that name ring any bells?

Nope.

My kids didn’t know him either, and I didn’t know him before the campaign. But I actually got to interview him for a FinTech Snark Tank post.

So are you bullish on Chime’s ability to build deeper relationships through these kinds of cultural partnerships?

Yes, because not many financial institutions are doing it at that scale.

Banks and credit unions are posting on LinkedIn and TikTok, but partnering with artists and cultural figures creates a different kind of brand association.

Giveon isn’t necessarily acting like a traditional influencer in that video. The brand is simply present in a conversation about money and life.

That can still create a connection.

We’re seeing more financial brands use creators and influencers as part of distribution and awareness, and I think community institutions need to understand how powerful those channels can become.

All right, I don’t want to run out the clock because there’s one more neobank we have to talk about: Nubank.

You’ve been a big fan of what they’ve done in Brazil. Tell us what caught your attention.

I was on LinkedIn and came across a post from Cristina Junqueira, one of Nubank’s co-founders.

She shared the company’s second-quarter results and said Nubank now serves roughly 123 million customers. Revenue was up about 40% year over year, and profitability reached record levels, supported by a very cost-efficient platform.

I went down a rabbit hole trying to understand how they got there.

One important part of the story is Pix, Brazil’s instant-payment system.

Nubank built aggressively around those real-time payment capabilities, and payments became an important engagement point.

The company also focused on understanding what users actually wanted from mobile money movement. The principles that kept coming up were simple: cheap, fast, transparent, open, and secure.

Those became foundational ideas.

The scale is remarkable. The system was initially built around projections that seemed ambitious, but actual usage quickly exceeded those expectations.

Today Pix processes enormous transaction volumes, and it has displaced a significant amount of cash usage in Brazil.

In a country where cash historically played a major role, especially among street vendors and smaller merchants, QR codes and instant payments created a major shift.

Nubank built around that transformation and continued investing heavily in user experience and data.

That’s why I find the story so compelling. It’s a relatively young company, yet it has reached extraordinary scale.

A couple of reactions.

First, a quick shout-out to Matera, which has played an important technology role around Pix and is now expanding in the U.S. market.

Second, I always look at Nubank through the lens of U.S. banks and credit unions.

Fintech influencers often point to Nubank as a model U.S. institutions should copy. But we have to be careful because Brazil and the United States started from very different banking infrastructures.

The U.S. already has thousands of banks and thousands of credit unions, a mature payments system, and very different consumer expectations.

So it isn’t an apples-to-apples comparison.

That said, there are important lessons.

One is instant payments.

A lot of U.S. financial institutions are still operating in receive-only mode when it comes to faster payments. They haven’t fully embraced the sending side or built business models around instant-payment capabilities.

I think that will change over the next few years, and the institutions that get ahead of it will have an advantage.

The second lesson is segmentation.

Nubank’s growth was not simply “let’s build a generic digital bank.” It understood specific customer groups, use cases, and pain points.

That vertical or niche focus is exactly what I think more U.S. banks and credit unions need.

Agreed.

And the reason the comparison isn’t perfect is exactly what you said. The U.S. is a much more mature banking market with thousands of banks and credit unions.

Nubank entered a market with large underserved and unbanked populations.

That reminds me of leaders such as Darrin Williams at Southern Bancorp, whose mission is heavily focused on underserved communities.

There is still a lot of opportunity in the U.S. among people and communities that traditional finance has not served particularly well.

The other thing that stands out is Nubank’s relentless focus on data and user experience.

They keep reducing friction. They keep asking how to make money movement easier. They keep testing how many clicks a user needs to complete a task.

That is something U.S. financial institutions can learn from regardless of the structural differences between the two countries.

And the roadmap doesn’t stop there. Tokenization, AI, and other technologies are part of the next phase.

But the sequence matters. They built strong payment rails and customer adoption first. Then they layered additional capabilities on top.

If we had to summarize the entire episode, I think we’d come back to the same point we’ve made before: the riches are in the niches.

Identify the segment. Understand its pain points. Build the capabilities that matter to that group. Then test, learn, and expand.

I’ll give you the last word on that one, Stacey.

Thanks everybody for listening. We hope you’ll join us for another episode of What’s Going On in Banking.

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Thanks for tuning in.