Online or e-banks are nothing especially new. The traditional banks first began steadily ushering their customers towards online banking in the early 00’s and the fin-tech sector has been steadily growing for at least the decade with start-ups such as Transferwise, N20, and Revolut already well on their way to international success.
However, the COVID-19 pandemic appears to have re-ignited interest in the online banking sector and it has become hot property for investors. In this post, we will try and establish why exactly that is and who the big beneficiaries are.
Overall, the COVID pandemic was extremely bad for business. Hospitality and retail business was pushed to the edge of bankruptcy, travel went to the wall and numerous global currencies were devalued owing to unprecedented binges of quantitative easing.
Yet there were some real winners (or profiteers?). Obviously, Pziifer did very well by the close of 2021, and anybody making hand sanitizer will probably have made more money in April 2020 than in the whole of their lives. Then, the online giants like Amazon posted record profits as they straddled public service status and food delivery apps like Uber Eats got rich from our collective desire for contactless food brought all the way to our lockdown cells.
But, quietly and without fanfare the e-banking/fin-tech sector also had a highly successful pandemic. This may seem surprising as traditionally, slowing economies and drops in consumer confidence are bad news for banks. Furthermore, the prospect of imminent death is supposed to inspire us to live our dreams before it’s too late, not to change our bank before the month-end.
On the other hand, though, lockdowns and furlough schemes meant people had a lot of time on their hands, and this forced many to think about their banking for the time in their lives. Concerns over infection made cashless popular and so banks that offered contactless options picked up new customers.
The traditional banks have themselves responded to this trend, however. Apps like Zelle have all the appeal and technological edge of the challenger banks but are actually owned by Bank of America, BB&T (now Trust), Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo.
Let’s take a look at some of the online banks that did particularly well during the pandemic in a few choice markets.
Launched publicly on the Dr. Phil show back in 2014, Chime has risen to become the biggest quasi e-bank in the states. In its most recent round of funding, last August the challenger bank raised a highly impressive $1.1 billion in venture capital funding in order to develop new products.
However, speculators are wondering whether it’s all a case of “too high too soon” as Chime has recently announced that its plans to go public with an IPO of $45 billion have been delayed until late 2022. Officially, Chime says it has chosen to take the time to focus on those new products but some are wondering whether everything is OK behind the scenes or whether the delay is indicative of a general lull in fin-tech stocks.
The fertile banking conditions in the UK have helped a number of successful challengers and online banks get started and names like Wise and Monzo are fast on their way to becoming as ubiquitous as that of Paypal.
Still, so far Revolut is winning in the e-banking battle of Britain. Founded only in 2015, the London/Lithuania-based outfit became the UK’s most valuable fintech company in 2021 when its estimated value leapt up to over $25 billion. It reported a year-on-year growth of 57% and made its founder Nikolay Storonsky a personal fortune of some $7 billion.
That said, the company is currently posting losses as it continues to spend fast. In July 2021 Revolut raised over $800 million from investors to finance their ambitious plans for expansion.
Voted “best bank in the world” in 2021, N26 seems ready to bounce back after some testing times. The fin-tech big hitter was caught up in a money-laundering controversy in 2021 and accused of failing its due diligence obligations. Investigations are still ongoing and the German regulator could take further action.
However, the challenger bank has a lot going for it. It is based in the heart of the EU economy, has a full European banking license and its native currency is the Euro. As such it has an immediate “in” with over 19 developed world economies. So perhaps it is not surprising that the fin-tech behemoth is valued at $9 billion and managed recently to raise $900 million in a round of funding. CEO Peter Thiel has confirmed that the bank is hoping to be fully IPO ready for the stock market by the end of 2022.
The pandemic was a tough time for banking in Canada as the government announced additional regulatory obligations that tied the hands and limited the investment potential of the industry. Still, Canadian online banking is growing and the online sector continued to pick up new customers despite the challenges the sector faced.
Many of Canada’s more established e-banks are owned by the traditional banks as is the case with Tangerine. Operating as the low fee, a tech-friendly arm of Scotia bank, Tangerine has now grown to serve over 2 million users and hosts $40 billion in total assets.
Across the globe online, app and e-banks are growing fast. As we head towards the end of Q1 in 2022, it is going to be very interesting to see how the sector has fared since the “end” of the pandemic and when 2021’s results are posted in April/May, we can expect some champagne corks to be popping.
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