A Neobank for YouTubers? How to win market share as a neobank

How to win market share as a Neobank

My previous two posts discussed:

1. Why the current banking environment provides an opportunity for new neobanks

2. What is a neobank and how their business model is different from traditional banks

This post will tie those two themes together – how to win market share as a neobank using an example of a neobank for YouTubers.

Brief Recap

To set the stage on the banking landscape:

1. The federal reserve has rapidly raised interest rates in 2023

2. The rise in rates is causing stress to community banks

3.  The stress on community banks will make them acquisition targets to mega-cap banks

4. The mega-cap banks will become bigger and more powerful

5. Mega cap banks focus on larger corporate customers to move the needle on revenue

This will lead to a lot less banks in terms of numbers and a lot bigger of banks in terms of size. Mega caps will become mammoths. When mammoths get too big, innovation becomes a challenge.

Enter the neobanks.

Neobanks have the advantage of speed and agility. Neobanks are not regulated, FDIC insured depository institutions and therefore do not need to go through the same regulatory process as a traditional bank.

All said, the barriers to entry are much smaller for Neobanks than regulated banks. Given a neobank’s technology focus, they can be created relatively quicker from anywhere in the country.

Winning market share

Larger banks will become bigger, which means two things for them:

1.  Product standardization (to achieve scale)

2. Focus on larger clients (to achieve profitability)

As an upstart neobank, the goal is to identify a niche population with a very acute pain point with their current banking experience and develop technology to solve that problem.

Sounds simple. But banking is a commoditized product, differentiation is difficult.

Banking pain points are pretty common. Here are some examples:

1. Access to credit and loans

2. Customer service

3. Tools that integrate with their business

4. Onboarding and account management

What is not so common is how these pain points rank and are weighted amongst different niche populations. A neobank will have to figure out those rankings and weightings to win market share.

For example, let’s say you want to start a neobank for popular YouTubers. Let’s also say that you discover that these YouTubers want to take out loans to fund new equipment that will enhance their videos. Big banks won’t lend to them and access to credit is a major pain point.

From these insights, you develop a neobank that will underwrite a loan based on number of channel subscribers, previous video viewer trends, cash flow from royalties, and other traditional financial information.

(note: neobanks can make loans but not from their own balance sheet, see my previous post for more details)

To do so successfully, you will need to develop technology that integrates with YouTube’s platform that can monitor and have access to cash flow information. Borrowers (YouTube creators) will need to be able to apply for a loan and submit documents fully online.

Integration with YouTube’s platform will help the neobank mitigate risks (as they have access to financial data) and will make the loan  application process easier for creators.

This population is digitally native, scattered in different parts of the country, and would most likely prefer to apply for a loan online compared to walking into a mega cap branch.

Moreover, to a mega cap bank, designing the technology, underwriting standards, and marketing campaign to serve this niche is probably not worth it. Any incremental revenue they would receive wouldn’t make a meaningful impact on earnings. Plus the opportunity costs are higher for mega cap banks than for startups. Mega cap bank managers time is probably better served trying to make their big corporate clients happier.

All said – neobanks revenue is deposit driven. Offering loans can be used as a customer acquisition tool for deposits. In the example above, if a YouTuber wants a loan to upgrade his / her equipment, the neobank can require they open a deposit account with a minimum balance.

Additionally, the neobank can develop tools so specific to this niche that perhaps the YouTuber would be willing to pay a monthly premium to bank there. In a time where most banks offer free checking and savings accounts, Neobanks can offer tools that integrate so well with a specific niches business that they can command premiums. Again, large banks don’t have this razor focus. 

Conclusion

As traditional banks get bloated, their products become standardized and opportunity costs larger. A neobank can win market share by nipping away at fringe populations underserved by standard products. The playbook should go as follows:

1. Identify a niche with banking needs (deposits and loans)

2. Figure out their most acute pain points

3. Develop technology & operations that solve that pain point specifically for that niche

4. Make the technology so good that you can charge a premium for your product

5. Win customers

Remember: fringe, niche populations may not be a meaningful business to mega-cap banks but they could be a very profitable, lucrative opportunity to a leaner, smaller neobank.