Banking Briefing: A look into new challenger bank Zolve and a few thoughts on niche banking apps

The company has raised $40 million in its Series A funding round, managed to get 290,000 people on its waiting list, and rolled out its credit card to 12,000 users.

“We are looking at building a financial world that goes beyond borders, and we want to simplify the whole process of money movement across borders. And that's our vision,” said Raghunandan.

Looking ahead, Raghunandan’s plans are to expand Zolve’s offerings to users from India migrating to other countries as well, including the UK, Australia and Canada.

It’s true that Zolve is still young, but its growth and approach brings to mind a question: how niche can a niche banking app get?

It’s not that long ago that I spoke with Magnus Larsson, CEO and founder of Majority, a challenger bank focused on helping people from different countries immigrate to the US. 

Rather than focusing on origin as the niche determiner – like Zolve does – Majority uses immigration to the US as its main differentiator. Its approach is then to tailor its services to each country of origin. Right now the company is primarily focused on Kenyan, Ethiopian, Nigerian, Columbian, Mexican, Cameroonian, and Cuban communities. 

When you study linguistics, one of the first things you learn is that there is an infinite number of sentences you can make in the English language. Can the same be true for niche challenger banks?

Or is there a point where you can get a bit too focused? Say, building a challenger bank for glasses-wearing granola-eating bookworms, for example (if you know any of those feel free to let me know).

At some point, someone has to raise her hand and say, you’ve gone too far. But when does that moment come? 

Since technology has made geography less of a limitation, it may be the case that niche challenger banks get more routes to explore, according to Ryan Falvey, managing partner at Financial Venture Studio.

“Although we've seen a number of new challenger banking products - often targeting relatively specific niches of consumers - we continue to think that there are significant opportunities available for neobanks,” said Falvey.

He points out that these geography-freed segments that challenger banks target can make up significant portions of the population. Daylight, which targets self-identified LBGTQ+ consumers, has a market of 30 million users, for example. 

Meanwhile, combining niching with the removal of un-fun traditional bank features gives up-and-coming digital banks a continuous edge.

“It's often possible to secure a competitive advantage by simply removing negative features from products offered by the incumbents: for example the fee-free features of Chime,” said Falvey. “For those startups that actually create new customer experiences based on the specific needs of their target demographic, the opportunities can be significant.”

On Plaid Income and the rise of payroll/income data

This month, Plaid launched its new income and employment verification product Plaid Income.

Plaid Income, which was introduced in beta last year, gives lenders a more flexible way to look at consumers’ income. The product gives lenders access to the income data from three different sources, including bank, payroll, and documents. 

Plaid is not alone in its focus on income and employment verification. Argyle, for example, is an employment data platform that acts as a gateway for companies to access employment records. In March, the company launched a new offering called Argyle Verify, which allows consumers to generate their income and employment verification reports on their own. Atomic, meanwhile, is a payroll connectivity firm that, among other things, allows consumers to connect their financial data for income and employment verification. 

Why am I mentioning this?

The global gig economy has seen a boom since the start of the pandemic. Gig-based transaction volume is expected to grow by 17% annually. By 2023, that number is expected to reach $455 billion. Meanwhile, the creator economy alone is expected to become a $104 billion market by the end of this year.

As consumers’ sources of income become more varied, lenders are facing a situation where they need to reevaluate how they look at income data. Lenders that can best figure out how to analyze these new sources of income could have the upper hand.

Aaand it’ll be interesting to see how companies like Plaid, Argyle and Atomic fit into this new narrative. 

What we’re reading

Russian central bank says it won’t reveal list of users on its SWIFT alternative (Reuters)

Revolut partners with Cross River Bank to offer U.S. consumer loans (Banking Dive)

Ellis, a challenger bank focused on international students studying in the U.S., raises $5.6 million (TechCrunch)

The challenges of modernizing core banking systems (IBS Intelligence)

Consumers want banking to be enjoyable – is that possible? (Finews)

Fintechs have some work to do with their financial crime controls, according to U.K.’s Financial Conduct Authority (CNBC)

What Plaid co-founder has to say about iffy banking tech (WSJ)

Digital banking trends at Bank of America (The Motley Fool)

The Office of the Comptroller of the Currency accuses crypto bank Anchorage Digital Bank National Association of violating anti-money laundering rules (Reuters) 

Legal matters Credit Suisse a whole lot of money (CNN)

Inflation does not spell success for fintechs (Forbes)

What we’re writing

The evolution of lending towards a digital ecosystem, in 4 charts 

Marketing Briefing: A bank rebrands into a fintech 

‘We don’t care about being the first, we care about being the best’: Helix’s Ahon Sarkar 

Bitcoin 2022 Miami: Has Bitcoin taken over the world yet?

The ESG mirage: More about the hype than values