Embedded Finance - Scarlett Sieber

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that neobanks did not actually gain significant traction compared with bank competitors. Shevlin said:

      I would argue they didn't gain traction, but the gap that they perceived, one perception was right and one was wrong. The wrong perception they had was that consumers didn't want to do business face-to-face, person-to-person. The gap that they were correct in was that there's a way to reduce the cost of the delivery of financial services by not going through the branches.

      In other words, digital works, but not because customers don't want to see other humans. Where neobanks succeed, according to Shevlin, is in serving specific niches, such as Aspiration, which serves environmentally conscious customers, or Panacea, which serves physicians starting out in the field.

      The neobanks were being formed after years of studying the industry, using contemporary technology and in some cases, operating with updated business models. But neobanks are not necessarily vertically integrated companies that own every piece of the technology stack. They often rely on partnerships with other technology companies that specialize in particular products, and often have banks at the bottom of the stack. Using bank licenses has been an important early step in both Europe and the US. Some of these companies have ultimately gone on to acquire their own banking licenses.

      What did those successful neobanks do differently? When asked about NuBank, Chris Skinner, author, commentator and founder of The Finanser blog, believes they have been particularly successful because they reached out for financial inclusion while many banks in the region still do not understand what it means. Financial inclusion in its most simple form is offering banking services to people who cannot afford it. Some 20% of NuBank's customers are individuals who couldn't access banks before. Many neobanks currently try to compete with traditional banks in a similar way. In today's world, the customer needs digital connectivity. Bunq, Starling, and Tinkoff are a few examples of neobanks who understand this concept and are successful in creating digital connectivity to customers who have not been served before.

      While, in general, the neobanks have started with one specific product offering, some have done well in expanding their product suites in a compelling way which in turn increases touchpoints with their customers, customer lifetime value, and the total addressable market. This larger movement has become known as the rebundling of the bank and now is being referred to as Super Apps.

      With neobanks’ digital-first (or digital-only) offerings, banking services can be delivered à la carte and on-demand, and can happen in any context. Companies, such as Monese for migrants and Daylight for LGBTQ+ consumers, are addressing specific problems for their communities, and building products that make sense.

      At the same time, other neobanks who started off with a specialization are now expanding from their initial highly targeted customer base to a much broader one to achieve scale and hit growth targets. Revolut, who initially targeted mostly travelers, broadened their financial services offering beyond multi-currency accounts and cheap FX toward investments, crypto, and savings, and even launched a SME offering, to maintain its growth rate and increase its total addressable market. Tinkoff similarly started off by offering simple credit products before becoming a Super App touching most segments of the Russian population, and plans to expand to the Philippines.

      The exception is with peer-to-peer apps, in which you need the person on the other end of the transaction to be part of your network. Another exception is investing and cryptocurrency services, in which people enjoy sharing expertise, and information can be shared without sharing dollar amounts.

      There are signs that Gen Z consumers will show greater openness about money and have a greater comfort level sharing personal details, but it is still early in their financial lives. This is certainly true of platforms like TikTok with the craze of “FinTok” and “Finfluencers” including Queenie Tan who, as of January 2022, has nearly 120,000 followers, and Andres Garza, also known as @capital_inteligente, as of January 2022, who has nearly 1,000,000 followers. They openly talk about once taboo topics and make the concepts of financial literacy cool and relatable.

      Case Study: Tinkoff

      Over the next several years, a growing customer base started demanding more and more services from Tinkoff, which pushed the bank to launch a full product suite, including credit cards, personal loans, point-of-sale loans, and eventually secured products like home equity loans and car loans. On the transactional side, Tinkoff launched a debit card, the largest retail brokerage platform in the market with 70% of all active customers in Russia, and an insurance business focused primarily on car insurance. It also moved into the B2B space

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