What’s driving the ongoing success of Neobanks? Innovative customer interfaces and ease of use are just two of the factors. Less well documented is the growing need for new financial institutions to service the small business sector – and to boost economic growth.

For example, in the UK we’ve seen Metro Bank, Starling and ClearBank receive multi-million-pound grants earlier this year. The grants came from an RBS fund launched to enhance competition in the business banking sector.

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The fund was set up as one of the conditions attached to the bank’s £45 billion government bailout at the height of the financial crisis. It’s aimed at helping bidders develop their current account, lending and payments offerings for business customers, especially SMEs.

And the opportunity to bid for funds coincides neatly with the recent commercial success of Neobanks, such as Monzo and Revolut, along with cross-border payments service providers, including Monese.

Servicing the underserved

Having proved the success of their crowd-pleasing propositions in the retail banking sector – and prompting established banks to seek new ways of emulating or acquiring that success – these brands are now turning to the underserved and underbanked SME sector.

However, according to Currencycloud’s Head of Neobanking, Lewis Nurcombe: “In order to build market share, Neobanks need to offer as wide a range of services as possible. And just as they have won many consumer customers by offering transparent FX rates along with low-cost international payments, so they are using the same capabilities as a ‘Trojan Horse’ to acquire SME clients.”

“In order to build market share, Neobanks need to offer as wide a range of services as possible. And just as they have won many consumer customers by offering transparent FX rates along with low-cost international payments, so they are using the same capabilities as a ‘Trojan Horse’ to acquire SME clients.”

Their cause is aided by the fact that money transfer services offered by traditional banks to SMEs are notoriously expensive, leaving the market open for Neobanks and payment service providers to fill the gap.

Neobanks have won in the retail sector by targeting customer groups who receive or send money across borders, including migrant workers and students, using FX as an acquisition tool. The next stage will be to identify groups of SMEs that are likely to expand into new international markets, notably those operating ecommerce platforms.

At a time when UK SMEs are likely to be building out broader export businesses post-Brexit, low-cost, reliable, secure and transparent international payment services will be particularly valuable to owner/operators who want to grow their businesses.

Built-in FX and payments capabilities

Not only does FX act as an acquisition tool for Neobanks and payment services providers, it also creates a revenue stream. In turn, this makes their own proposition and business model more attractive to investors, who are increasingly attracted to these ‘golden children’ of the fintech world.

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Brands such as Revolut and Monese have already taken advantage of the existence of the ready-made, tried-and-tested Currencycloud platform, which has been designed to handle all of the heavy lifting when it comes to setting up an FX/payments facility.

Nurcombe added: “We anticipate that many more Neobanks and payment services providers will follow the early adopters’ lead, especially when pursuing the huge opportunities presented by initiatives such as the government-led RBS fund, together with a predicted growth in exports and meaningful investor capital.”

Lewis Nurcombe

Lewis Nurcombe leads Currencycloud's sales activity within the fast-changing Neobanking space and is also the General Manager of Currencycloud B.V based in Amsterdam.