Another part of the banking and payments arena that appears to have taken a hit lately has been challenger banks and neobanks. Finbold reported a drop in the app downloads for several of these digital only banks in the UK between February and March of this year.
Consumers’ attention appears to be elsewhere and opening a bank account doesn’t appear to be a top priority:
Leading challenger banks have witnessed a significant drop in the number of new app downloads in the wake of the Coronavirus pandemic. Data compiled by Finbold.com indicates that on average, the challenger banks’ app downloads dropped by 23.38% by the end of March 2020 compared to February this year.
Among the leading impacted challenger banks is United Kingdom’s Monzo whose app downloads declined by -36.12%. Last month the bank only registered 148,608 downloads, a drop from February’s 232,639. During a similar period last year, the bank was on a growth trajectory in terms of app downloads registering a percentage increase of 27.68% between February (123,317) and March (157,463) 2019.
On the other hand, Revolut saw a drop of -18.16% in downloads. In March 2020, the platform had 95,461 downloads, a drop compared to 116,648 registered a month earlier. Just like Monzo, Revolut was on a growth path during a similar period last year. In March 2019, the neobank attracted 73,016 downloads, representing a growth of 13.19% from 64,504 new downloads in February last year.
I suspect that traditional financial institutions are also facing a similar slump, but the challenge for challenger banks may go deeper. Some consumers will open a challenger bank or neobank account as a secondary financial account, often chasing great savings rates.
Now as the economic forecast is much less clear, consumers may opt to consolidate their funds where they feel their money is most safe. In addition to losing some balances, challenger banks may also see a drop in interchange income, often their greatest source of revenue.
As consumers start to reel in their spending, there will be fewer transactions on debit cards or prepaid debit cards that generate interchange income. It will be interesting to watch how long the investors in challenger banks are willing to continue to fund these businesses.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group