Neo-Banks Pivot From Bank Disrupter To Partner

There was a time in the not-so-distant past when so-called neo-banks were considered a disruptive threat to actual banks. But fintech startups like Moven and Simple are increasingly shifting their focus from competing with banks for deposits to partnering with them for business.

This trend featured prominently at American Banker's Digital Banking 2016 conference, which took place this week in New Orleans. Moven co-founder Alex Sion said he hoped to "dispel the myth that Moven is a neo-bank." This statement highlights Moven's business model evolution over the last year toward partnership plays. Moven partners with CBW Bank, which issues the Moven card.

And Moven was tapped to build TD MySpend, a personal financial management app for Toronto-Dominion Bank. Sion said at the conference that in the two months since launch, the new app has already generated 10% penetration among TD mobile app users.

It's increasingly likely that Moven sees its future lies in leveraging such bank partnerships rather than competing for deposits.

BBVA set the wheels in motion for this collaborative dynamic when it acquired Simple in February 2014. "Unlike most banks, we decided that these barbarians at the gate weren't to be feared," remarked BBVA Compass Chairman and CEO Manolo Sánchez at the conference.

"Traditional banks are really having a hard time attracting talent in areas of digital processes that we need to be building," Sánchez added. Acquiring Simple enabled BBVA to quickly roll out mobile initiatives, something that could take its competitors years to build out of whole cloth.

The acquisition of Simple and the recent pivot of Moven begs the question, are neo-banks still a viable model? Some bankers attending the conference registered skepticism that neo-banks could ever really compete at a level that would be relevant to banks.

"When you look at these players, Chime, BankMobile, Moven … you're just not seeing mass adoption," said Michael Storiale, digital banking manager at Connecticut-based Guilford Savings Bank. He said that even today it is difficult to expand a deposit base without a branch footprint.I can't see how these neo-banks will really disintermediate without their own bank charters, and that's just such a high barrier to entry," said Storiale. "Legal and compliance fees reach into the millions before you even know if you'll get a charter."

It's too early to say what Moven will do with its deposit service business as it pursues more partnerships, but with so many banks in need of expertise to build out mobile platforms, it will be interesting to see if neo-banking peers like Chime and BankMobile shift their business models as Moven has to take advantage of this demand.