Banking Briefing: Sinking public neobanks
- The market hasn't been kind to newly-minted public neobanks.
- Firms like Dave are experiencing a sinking share price as investors say 'meh' on their prospects and valuations.
Investors aren't impressed with the new class of fintech firms hitting public markets. Challenger bank Dave is the latest to go public -- it floated its shared via a merger with a SPAC last Thursday. The market originally valued the firm, which saw success with early wage access and credit building, at $3 billion. Shares were down 32% a day after the firm hit public markets.
Dave's sagging stock isn't alone in terms of public fintech firms exploring public markets. Firms like eToro (valuation cut 15% on its upcoming SPAC) and MoneyLion (down 17% last week) aren't seeing much success as public entities, even if their businesses are performing relatively well.
Getting back to Dave, the company says it expects to hit about $200 million in revenue this year, about 60% more than last year.
New products and distribution
Launching new products and building out ecosystems appear to be the first moves newly-minted public fintech companies are taking. Dave plans to launch new products, including a peer-to-peer donation account that works similarly to a GoFundMe account and a peer-to-peer money-transfer product, similar to Venmo.
The company is also exploring potential uses for crypto. As part of its SPAC transaction, Dave raised $210 million through a private investment in public equity. One of the inventors in that deal was cryptocurrency exchange FTX, which invested $15 million.
MoneyLion, which went public via SPAC in 2021, has been busy with acquisitions. The firm acquired Even Financial, an advertising marketplace that helps financial institutions find new customers for their products. This acquisition should help the firm shore up its distribution and expand its product offerings, a must-have for challenger banks like MoneyLion that lack real differentiation in their brand. Bringing Even into the fold is expected to add $90 million of revenue and positive EBITDA in 2022.
MoneyLion also acquired Malka Media, a creator network and content studio. Influencer marketing is a scalable and profitable channel for neobanks to onboard younger customers and Malka enables MoneyLion to go directly to their audiences.
“With MALKA’s creator network we no longer need to just go through gatekeepers and monopolistic intermediaries to directly communicate with our audience and communities. Investing in evergreen content and building a platform where creators and consumers can come together is a more efficient and smarter way to support our marketing investments and brand building. This fundamental shift will allow us to own and not rent the relationships we are cultivating with new and existing MoneyLion customers,” commented Bill Davaris, CMO of MoneyLion.
Current, a competitor to MoneyLion and Dave, uses influencer marketing to grow its 3 million member audience. For Gen Z, advertising can be seen as a negative signal. This demographic understands that anyone can run an ad on a TV network or Facebook or Twitter, but getting an endorsement of someone they look up to seems much more legitimate. Working with social media celebrities like Mr Beast, Current incentivizes new account signups with influencer giveaways and contests.
The evolving role of brand
Financial institutions are positioning themselves more alongside their customers' financial journeys than opposite them. Take Ally's 'We're all better off with a financial ally' campaign. It's the firm's biggest campaign to date, including over a billion impressions and more than 700 out-of-home units across nine cities, including NYC, Nashville, LA, Miami, Detroit, Charlotte, Chicago, Atlanta, and Dallas.
It zeroes in on everyday moments in people’s lives where an ally comes into play, whether they realize it or not. The campaign emphasizes words that end with ‘ally’ and have some strong meaning behind them – like heroically or matrimonially.
The important part here is that the top 10 bank is saying it wants to be friends with its customers. This isn't a message from up high in the ivory tower. Channel choice is also important here, too -- it's the first time the bank has ventured onto TikTok. Through the #myfinallymoment challenge on the platform, users are encouraged to share accomplishments they’re proud of together with that hashtag. One user, for example, shares that after three months, he managed to save up enough money to send his parents on a trip. Another user describes how she was able to go from bankruptcy to owning four businesses and three homes.
Moving into financial wellness
With over 700,000 users, Betterment is one of the biggest and oldest robo-advisors, but competition is growing. And as the world of investing changes, so does the look and feel of investing apps. Financial wellness has become a very important topic.
Betterment is adjusting accordingly. With its new look, the company aims to juxtapose wealth with wellbeing. The original Betterment brand emphasized analysis and performance, captured by the speedometer in the firm's logo. The new Betterment brand got rid of the speedometer altogether and replaced it with what it calls ‘the sunrise’. The rising sun is still the same shape as the speedometer but instead reflects a broader idea, alluding to financial wellbeing.
Betterment’s chief marketing officer Kim Rosenblum says this is intentional. It helps the company steer away from the FOMO-molded look investing apps often have.
The new look, she says, has more of an anti-FOMO feel.
“You don’t have to feel like you’re missing out, you don’t have to worry that there’s a trend or a moment to jump on. It’s not about timing the market, it’s about time in the market. And so the branding really is meant to reinforce that, and give you a sense [that’s] calm and deliberate so you can make good long-term decisions,” she said.
Quote of the Week
“Should we have built trading and crypto instead of launching in the US? In hindsight, it might have been a smart idea,” N26 co-founder and co-chief executive Max Tayenthal told the Financial Times in an interview.
Well, that seems like a no-brainer. N26's expansion to the US seemed doomed from the start. Relying solely on what it said was its superior app design, the challenger bank severely misunderstood what a successful US launch entailed. It wasn't that this naïveté or hubris merely lost the firm money, but it took time and focus away from what the firm is actually good at: app design.
International expansion moves energy and focus out from the core of a company and shifts it to the firm's periphery. The US is a very competitive banking market. JPMorgan Chase, Goldman Sachs, and US Bank have really good digital options. It also has dozens of good, funded neobanks. It's not clear what N26 was thinking when it launched in the US without a big budget, competitive differentiation, and cohesive plan. But in retrospect, that time, energy and money would have been better spent expanding the firm's popular core account.
N26 is planning to launch a cryptocurrencies trading business this year and an equities brokerage after that, according the to FT.
Better late than never.
What we're reading
Good to know
- Starling Bank stops advertising on Facebook, making a stand on loose fraud oversight (Bloomberg)
- FinWise Bancorp: A fintech-heavy partnership model (Seeking Alpha)
- U.S. Bank brings real-time payments to consumer bill pay (PYMNTS)
Food for thought
- The CMO in banking role is getting disrupted (The Financial Brand)
- Decentralized credit protocol Goldfinch has raised $25 million led by Andreessen Horowitz, which led its $11 million round last June (CoinDesk)
- Analysts expect big banks to post record profits for '21 (PYMNTS)