Low fees and high interest rates are allowing VC-funded “neo-banks” like Chime, Aspiration, Empower, and Varo to compete with the big consumer banks in the US
Nathaniel Popper / New York Times : Tweets: @nathanielpopper , @garrytan , @mr_james_c , @jamesplloyd , @nytimesbusiness , @nytimesbusiness , @nytimesbusiness , @alexisohanian , and @nytimesbusiness Tweets: Nathaniel Popper / @nathanielpopper : Why is my big bank charging me fees and not paying any interest on my savings? These sorts of questions are finally giving some momentum to the customer-friendly neo-banks taking on Wells Fargo and Bank of America. https://www.nytimes.com/... Garry Buidl Tan / @garrytan : “The 10 largest banks would lose $159 billion in deposits to smaller competitors over the next year."@empowermeapp is leading the way. Way to go @warrenhogarth http://www.nytimes.com/... @mr_james_c : It's so cute when America gets all excited about a tech trend that's already pretty established in Europe and blasting through the stratosphere in China. http://twitter.com/... @jamesplloyd : “Fast-growing online banks in Britain like Monzo and Revolut are providing a template for American start-ups.” They should be looking to APAC... http://twitter.com/... @nytimesbusiness : After the financial crisis, everyone expected consumers to flee the big banks for start-ups offering better service and lower fees. While it didn't happen then, it is beginning to happen now. https://nyti.ms/2RcMTL9 @nytimesbusiness : In China and Europe, customers have been leaving established banks for new online challengers. Now, America is catching up, and the big banks are on guard. https://nyti.ms/2Rd9O9i @nytimesbusiness : Bank customers are sick of overdraft charges and account maintenance fees. New online banks are starting to cash in on the dissatisfaction. https://nyti.ms/2DWpBGm Alexis Ohanian Sr / @alexisohanian : Can't deny it, the new banks are coming. Millennials won't settle for a checking account with a bad mobile experience, low interest rates, and no perks. The bar is being set by companies like @empowermeapp and we're proud to have been early investors. https://www.nytimes.com/... pic.twitter.com/tYyzBqHwkv @nytimesbusiness : Online banks are finally becoming a force in the United States. The leading player in the space, Chime, has opened two million new bank accounts and has been adding more new customers each month than either Wells Fargo or Citi. https://nyti.ms/2DUyW1z
Context & Ripple Effects
The US neo-bank wave arrives two years after the app-only banking boom in the UK and Europe, where favorable regulation and venture capital produced challengers like Monzo and Revolut — the American versions now lean on the same formula of no fees plus higher savings rates. The pitch lands because the incumbents' economics are exposed: an analysis cited in the piece projects the ten largest banks could lose $159 billion in deposits to smaller competitors over the next year.
The later record shows both sides of the bet paying out unevenly. Chime scaled fast enough to be profiled at a reported $5.8B valuation with 8M accounts by early 2020, while Varo — the first US neobank granted a bank charter — was burning $84M a quarter by Q1 2022 with 98% of income from interchange and fees, and by late 2022 several neobanks had struggled to keep their consumer promises as VC funding in the sector declined.
First-order effects
- Wells Fargo, Bank of America, and Citi face direct deposit flight at the margin: Chime is already adding more new customers per month than Wells Fargo or Citi, and the projected $159B deposit shift puts a price tag on the fee-and-rate gap.
Second-order effects
- Incumbents respond on two fronts visible in the coverage — improving their own tech offerings (cited as one reason neobanks struggled by 2022) and fighting over data access, having earlier argued that startups like Mint should pay fees for financial data.
Third-order effects
- The model's durability depends on funding and licenses rather than product: Varo's charter pursuit shows neobanks must absorb bank-grade capital costs, and when VC money recedes the low-fee promise collides with interchange-dependent revenue — pushing the sector toward consolidation or rate normalization.
The trend: Consumer banking is being repriced by VC-subsidized challengers, with the competitive frontier set less by apps than by who can fund thin margins through rate and funding cycles.