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Warning Signs Emerge for Neobanks: ‘Doomed to Not Survive’

In the News

American Banker – by Penny Crosman

Warning Signs Emerge for Neobanks: ‘Doomed to Not Survive’

Ominous signs have been appearing for challenger banks.

A recent study by consulting firm Simon Kucher found that of the 400 neobanks in the world, less than 5% are breaking even. U.S. challenger banks Chime and Varo have hit bumps in the road, Chime because it closed customer accounts due to suspected fraud, Varo because it has suffered steep losses and burned through investors’ cash. The CFPB is examining the bank partnerships, also known as rent-a-bank or rent-a-charter programs, that many challenger banks rely on for legal legitimacy and FDIC insurance.

And challenger banks, like many other types of fintechs, have seen their equity overvalued. All of this is likely to give neobanks’ backers pause as the economy tightens.

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