Scaling up neobanks for sustainable business models

Despite the numerous challenges, neobanks and other challengers have demonstrated their capabilities in attaining both impressive numbers of customers and healthy deposits.
However, the challenge remains in scaling the business to acquire greater profitability. Offering new products and services and entering new markets seem obvious ways of doing this but present the inevitable pitfall of increased costs.

That comes with competing priorities, because in a regulated environment you really need to work through some of the risk exposures in what you’re delivering. So, balancing that with moving quickly and delivering to the customer needs as safely as possible is our focus.
For banks only targeting specific segments of the market, scale up can be easier to obtain, particularly if they are not prioritising customer growth and the costs that come with it.

There have been multiple instances of new banks that have flown too close to the sun in scaling up, incurring unsustainable costs in their quest for rapid growth. This can be seen in the plight of Metro Bank, while even Monzo, one of the flagship UK neobanks, found itself having to scale back growth expectations when the Covid-19 pandemic struck.
I think, banks overreaching in their scaling up aspirations as “doing the wrong thing, but faster.

The plan for neobanks therefore is to prevent diseconomies of scale, which service-driven organisations may be afflicted with. This means growth can drive more and more problems to the door rather than driving them away. The bank’s method is to automate as many processes within the bank as possible.

This again raises the question about what could be achieved with strategic use of technology which frees up additional time and resources to focus on growing the core business. Smaller organisations must make compromises in their efforts to grow. Partnering up with technology providers mean they can offer products and services without breaching budgets.
Whether a bank takes this ‘plug and play’ approach or chooses to build in- house, the key is to allow maximum room for manoeuvre with a nimble approach to managing compliance and scaling up.