The Case for Better FinTech Metrics
A closer look into the narrative of neobanks.
Hi there,
How does one measure traction? This isn’t meant to be a trick question, but more often than not, it is.
Over the past few weeks, there’s been an uptick of news when it comes to neobanks. Some are being forced to close-up shop, others are gaining traction, and even a few hitting the scene with their first round of funding.
However it’s hard to deny the tenor has turned negative on digital banking, if not downright snarky.
Many thought-leaders have given their take on questions such as: What is the future of neobanks? Are depository accounts a business or feature? Is this just early innings, or are we in the bottom of the ninth?
The question I have, however, is:
Is the slew of seed/series A neobanks being measured on the right metrics in order to determine the viability of their business?
Paraphrasing the “neobank thesis”, the problem statement is as so: Consumers increasingly don’t trust the big, bad, evils of Wall Street. Challenger banks can acquire customers and earn trust faster (and cheaper!) by targeting specific – often underserved – affinity groups, while delivering a delightfully digital first, trustworthy, and tech-forward experience.
If we were to poll customers asking if their neobank delivered on these three things (☝️) I don’t doubt their answers would be, “Yes, yes, and yes.”
Unfortunately, these companies raised, at best, asinine valuations. Instead of being measured on leading indicators at seed such as value-add or even product-market fit proximity, the 2020-2021 cohort of neobanks are now being looked at solely based on the acquisition and revenue metrics of later-staged businesses.
I’ve touched on this before, but on average, it takes 7 to 10 years to know if a venture-backed company will be successful (excluding peak bubble; founders taking chips off the table out at A). When looking at neobanks, or consumer FinTech as a whole meeting their early demise, the lesson we can take-away is not whether or not the business was viable.
Do late-stage metrics of traction need some re-adjusting? No. But the hype of the past few years, accelerated by billion dollar seed funds and first-time angels, all but guaranteed failure. It’s incredibly important for founders and investors to not only align on valuation of the current round, but what achievable benchmarks will need to be hit to attract subsequent capital.
The good news? Digital banking is definitely in the early innings.
Cheers,
P.S. - The other side of the neobank coin: BaaS banks were also living in vaporware-land.
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