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The 'Neo-Banks' Are Finally Having Their Moment (nytimes.com)
After the financial crisis 10 years ago, unhappy customers were expected to flee the megabanks for smaller competitors. It didn't happen. And the big banks became even more entrenched. Now another wave of alternative banks are at it again, and they say they've learned from the mistakes of the upstart banks that tried -- and failed -- before them. The New York Times: Chime, the biggest new name to pop up, has opened two million fee-free online checking accounts and is adding more customers each month than Wells Fargo or Citibank. That has inspired a crop of newer start-ups, like Empower, which started its first fee-free online checking accounts, with lots of digital bells and whistles, in October. Venture capitalists are pouring money into American start-ups that are offering basic banking services -- known as neo-banks or challenger banks. In 2018 so far, American neo-banks have gotten four times as much funding as they did last year, and 10 times as much funding as they did in 2015, according to data from CB Insights.
Big players from outside the consumer banking industry, like Square and Goldman Sachs, are also moving in. "In consumer banking, you have what is one of the largest industries in the United States, in terms of profits, and at the same time one of the least disrupted industries, and the most unpopular with consumers," said Andrei Cherny, the founder of Aspiration, a neo-bank that has attracted nearly a million customers. "Those three things create a perfect storm for disruption." The persistent unpopularity of big banks has been a boon to the newcomers. And they are helped by a new attitude among financial regulators who have grown more comfortable with online banking and young customers who have no hesitation about cashing a check or sending money on a phone.
Big players from outside the consumer banking industry, like Square and Goldman Sachs, are also moving in. "In consumer banking, you have what is one of the largest industries in the United States, in terms of profits, and at the same time one of the least disrupted industries, and the most unpopular with consumers," said Andrei Cherny, the founder of Aspiration, a neo-bank that has attracted nearly a million customers. "Those three things create a perfect storm for disruption." The persistent unpopularity of big banks has been a boon to the newcomers. And they are helped by a new attitude among financial regulators who have grown more comfortable with online banking and young customers who have no hesitation about cashing a check or sending money on a phone.
Do you not remember the financial crisis? Do I have to explain it to you?
The Democrats passed a law requiring banks make loans to risky applicants under the name of political correctness. These loans (not surprisingly) collapsed, causing banks to lose a lot of money.
Enter the Obama regime. They decide to give the banks trillions of dollars to cover these bad loans that the Democrats made them give in the first place. But they limited this give away to the "big" banks, the "too big to fail" banks. They did let banks fail: the small, community banks. The banks that mostly served small, rural communities. These banks were not "too big to fail" - so they were allowed to fail, thanks to bad financial policy the Democrats had passed in the first place.
They then passed onerous financial oversight and regulations, regulations designed to be easy for the big banks to meet but impossible for small banks. This also helped drive out small banks, causing them to either close or merge into the existing big banks that the Democrats had already declared as the only banks allowed to survive. Why do you think Wall Street handed Clinton $450K just for showing up for an hour? Because she helped them eliminate the competition while working for the Obama regime.
It's no surprise people avoided smaller banks: thanks to the Democrat's financial policy following the financial crisis (that they caused in the first place), these banks kept on going out or being bought out by bigger banks. It's also no surprise that these small, "neo-banks" are finally having their day now that we have a real President who understands business in office: he's helped wipe away a lot of the federal restrictions that killed the small banks in the first place.