Over the past few years, neobanks have proven their ability to disrupt traditional banking models, offering a more customer-focused approach and modern banking experiences. This innovative operating model, which leverages digital-first solutions, has earned neobanks a growing customer base and solidified their position as strong competitors in the financial sector. As of 2023, more than 270 neobanks existed worldwide, and the number of neobank customers is expected to surpass 1 billion by the end of 2024.

In response, established banks have started modernizing their services, some by creating dedicated digital arms or even launching digital-only banks. This shift has contributed to the rapid growth of the neobank market, which, according to Statista, saw a global transaction value of USD 4.96 trillion in 2023. The market is projected to exceed USD 10 trillion by 2028.

Despite their success, one critical question remains: what is the state of neobank profitability?

A Global View on Neobank Profitability

Achieving profitability has been a challenging journey for many neobanks, akin to the experiences of most startups. Statistics show that the typical breakeven point for successful neobanks is around 5-7 years, although this timeline can vary based on various factors, including market conditions and business strategies.

Take Bunq, for example. Based in Amsterdam, this neobank became profitable a decade after launching. By 2023, it reported a net profit of €53.1 million. In contrast, Revolut, founded in 2015, only reached profitability in 2021, recording £638 million in revenue, which grew to £923 million in 2022. Projections for 2023 revenue are expected to reach £1.7 billion.

Similarly, Starling Bank achieved profitability in 2022 after eight years, reporting £453 million in revenue, marking a 222% increase from the previous year.

This trend of profitability occurring around 2021-2022 has been observed across other successful neobanks like Nubank and Redwood Bank, with many attributing their growth to the global pandemic, which spurred consumers to seek digital-only banking options.

Quick Profitability: Success Stories from Leading Neobanks

Certain neobanks have reached profitability much faster than others. Tinkoff, for example, hit profitability just three years after launching in 2009, despite a challenging economic environment. Similarly, OakNorth achieved profitability by focusing on underserved market segments, such as midsize businesses, and leveraging partnerships with fintechs, accountants, and brokers to expand their customer base.

This emphasis on collaboration and leveraging existing financial services and technology has proven to be an essential strategy for neobanks. OakNorth’s success is a testament to how innovative approaches and strong partnerships can accelerate profitability.

Key Success Factors for Neobanks

Building a profitable neobank isn’t easy. Despite significant investment, many fintech startups fail—75% of them globally, according to statistics. Neobanks face a range of challenges, from navigating regulatory hurdles to balancing profitability with customer value. Based on experience in building digital banks, we’ve identified several strategies for neobanks to achieve profitability, market presence, and long-term sustainability.

Leveraging Existing Assets

To grow sustainably, neobanks should leverage their existing strengths. This could involve building on brand recognition, establishing partnerships, and improving existing products. For example:

• Brand Recognition: A strong brand is critical for attracting and retaining customers. Neobanks with established brand trust enjoy higher customer loyalty and better market positioning.
• Ecosystem Partnerships: Successful neobanks often collaborate with other industry players to reduce acquisition costs, expand their customer base, and cross-sell services.
• Financial Services Expertise: Neobanks with prior experience in financial services can create more customer-focused products, helping them navigate regulatory challenges and design offerings that truly meet market demands.

Building for Scalability

The technology that neobanks adopt from day one has long-term implications on their ability to scale. A scalable and flexible infrastructure is essential for accommodating new services and responding quickly to market shifts. Key aspects to focus on include:

• Scalable Technology: Successful neobanks build on scalable technology that allows them to innovate quickly and adapt to changing market conditions.
• Agile Organizational Structure: Neobanks need to create agile decision-making frameworks that allow for swift adaptations to customer needs, market changes, and technological developments.
• Customer-Centric Focus: A focus on customer needs allows neobanks to offer products and services that resonate with their target market and gives them a competitive edge over traditional banks.

Sustaining Long-Term Success

For continued profitability, neobanks need to manage risks, reduce costs, and prioritize customer-centric innovations. Key factors include:

• Data-Driven Insights: Leveraging customer data allows neobanks to tailor products, improve marketing, and manage risk more effectively. This data-driven approach enhances customer experiences and helps maintain a competitive advantage.
• Risk Management: Neobanks must implement robust cybersecurity measures, comply with regulations, and mitigate operational risks to protect their reputation and secure long-term success.
• Balancing Innovation and Profitability: The most successful neobanks launch new products that generate revenue while keeping innovation costs in check, ensuring both growth and profitability.

The Role of Asia in Neobank Profitability

Approximately 60% of the leading neobanks are located in Asia, including major players like Kakao Bank, Paytm Bank, and WeBank. These Asian neobanks often take a collaborative approach, working with major tech firms to integrate into existing ecosystems rather than operating in isolation. This strategy has helped them achieve profitability faster than their Western counterparts, with some reaching profitability 49% faster than independent digital banks.

The ecosystem model, which involves partnerships with eCommerce platforms, social media companies, and other tech players, has played a crucial role in the success of Asian neobanks. For example, Grab in Singapore, originally a ride-hailing app, has evolved into a super app, offering various services such as payments and logistics. By leveraging its platform, Grab has accelerated its development and enhanced its offerings, supported by strategic partnerships with global companies like Microsoft, SAP Concur, and Mastercard.

Final Thoughts

The popularity of neobanks is set to continue rising, with consumers increasingly comfortable managing their finances digitally. In fact, 27% of global consumers are already engaged with neobanks, and 69% are open to digital-only banks. As technology continues to advance and mobile connectivity becomes more widespread, the stage is set for neobanks to thrive and become even more profitable in the coming years.