Neobanks Face Setbacks Amid High Cash Burns

Achallenging economic environment, diminished funding and valuations, and increased scrutiny of regulators have put tremendous stress on neobanks around the world. Over the past few years, the industry has seen its fair share of business failures often due to high cash burns with little or no revenue streams, a new analysis by WhiteSight, a research firm focused on the fintech space, shows.

The analysis, published earlier this month, looks at past failures and setbacks in the digital banking and neobanking sector, delving into business closures, country exits, license application withdrawals and business pivots to understand the areas in which digital challengers are struggling.

According to the report, at least 16 neobanks and digital banks have closed down around the world over the past couple of years, most often due to their inability to develop a sustainable revenue spurt and secure funding.

In particular, the research found that the US saw a majority of independent neobanks struggling to survive.

Denizen, a San Francisco-based challenger bank incubated out of BBVA’s New Digital Business Unit, shut down in 2019 after just one year of operation. According to WhiteSight, the neobank, which provided a global, borderless account for expat banking, faced difficulties in achieving the scale required to sustain operations.

For Beam Financials, an American mobile savings app, the business’ closure was forced by regulators. In 2021, the company ceased operations under a tentative settlement with the Federal Trade Commission (FTC) after a 2020 CNBC investigation revealed that dozens of customers were unable to get their money out.

The company was mandated to refund approximately US$2.6 million in customer deposits and interest, and banned from operating a mobile banking app or any other product or service that could be used to deposit, store, or withdraw funds. It also was prohibited from misrepresenting the interest rates, restrictions, and other aspects of any financial product or service.

Read more