Unicorn Neo Banks and their performance through COVID-19

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There are 17 unicorn neo banks (defined by a pre-money valuation over $1 Billion) from around the world and here they have been categorised by their core product at time of launch.

Even though the categorisation can be arbitrary in points (i.e. Revolut is under FX as their initial pitch was built around spending and sending money abroad), we believe this provides an interesting overview of successful and popular product segments.

Despite the impact of COVID-19 on funding and a decline in the number of deals, the largest digital banks continue to grow ever larger and reach record-height valuations, with a combined valuation of $90.0 Billion.

When ranked by their core product (at time of launch), Lending is the largest category with $33.3 Billion across six neo banks, followed by Debit Cards ($23.4 Billion, six unicorns) and Credit Cards ($12.9 Billion, two unicorns). This shows there are multiple roads to success.

Chime for example, which was standing at a valuation of just $5.8 Billion in February 2020 reached $14.0 Billion in and therefore can claim the title of the most valuable challenger bank in the western world, topping Robinhood ($11.2 Billion) and Nubank ($10.0 Billion).

The Asian-Pacific region however, and China in particular, dominates in terms of their sheer size. WeBank with over 200 million customers and estimated valuation of $21.0 Billion tops the scale, followed by other regional leaders as MyBank ($3.6 Billion), Toss ($2.4 Billion) and WeLab ($1.0 Billion).

The analysis on the impact of COVID-19 on neo banks using the Fincog Challenger Bank Index tracks 100 of the largest challenger banks worldwide on a monthly basis and is based on search frequency (i..e number of Google searches) as a proxy for traction.

Neo banks have seen strong growth in the last years – the only way seemed up. However, the coronavirus pandemic has significantly impacted this trend.

Overall market growth of neo banks has abruptly halted. While the index grew over 30% per year since 2017, its growth has been flat (0.1%) since January 2020 and decreased 4% since its peak in February.

Large differences between players

In the daily banking sector, we saw European players such as Monzo, Revolut and N26 declining, while daily banking challengers in other regions, e.g. Nubank in Latin America, performed well.

The foreign currency challengers were clearly impacted by the crisis, but some players prove resilient.

The clear winner across the globe is the trading sector, as shown by Robinhood (aside from the recent GameStop debacle).

Neo bank Comparison of Performance during COVID-19

SME lending challengers, e.g. Starling Bank, boomed as well during the pandemic. The consumer lending sector, however, saw flat growth.

The headwinds caused by the pandemic are reflected in the loss of traction of leading neo banks centred around daily banking.

Monzo’s Challenger Bank Index score fell by 19%, while Revolut and N26’s fell by 15% and 13%, respectively. Monzo has reportedly been hit by a 40% lower valuation for its latest fundraising.

Large differences between regions

European neo banks – particularly the leading UK challengers – were typically negatively impacted, while neo banks in North America, South America and Asia generally maintained high growth.

The Brazilian Nubank continued to expand across Latin America and has now reached over 25 million customers – this is reflected in a 16% growth in our Index since beginning of the year, and Nubank now takes the top position.

Nubank’s Argentinian peer Uala grew its Index score by 38% during the same period. In Asia, the Japanese neo bank Kyash managed to raise €45 million in funding.

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