Europe’s top 10 neobanks serve 64 million customers together

Changing customer behaviour, technological advances and an evolving regulatory landscape are fueling the rise of digital banking. So-called neobanks or challenger banks are quickly taking the market and now serve a combined customer base of 1 billion people.

The figure shows the hold neobanks have gained and reflects the demand for digital, customer-oriented banking and financial services from consumers, says a new report from the banking and payment technology company BPC and the strategy consultancy Fincog.

Within this ecosystem, Europe is among the most advanced digital banking markets in the world, the report says, a development that has been facilitated by supportive regulatory reforms such as the first and second Payment Services Directives (PSD1 and PSD2), as well as licensing. regimes such as for electronic money institutions (EMIs).

This favorable regulatory environment has sparked a boom in digital banking services across Europe, rising from just 57 players in 2014 to 162 in 2022. These figures suggest that the number of digital banks in Europe increased at a compound annual growth rate (CAGR) of 14% between 2014 and 2022.

Number of digital banks in Europe from 2014 to 2022, Source: Digital Banking in Europe, BPC and Fincog, 2023

The growth in popularity of neobanks in Europe is also evidenced by the number of customers these companies have gathered. Data from Fincog shows that as of the 1st quarter of 2023, the region’s ten largest neobanks served a total of 64 million customers. Some research studies estimate that user penetration currently stands at around 7-10% and is expected to reach around 14% by 2027.

Across Europe’s 160+ neobanks, Revolut has grown into the region’s largest player by customer base, and is well ahead of the pack with a reported 25.5 million customers.

In second place is Wise, a foreign exchange fintech company that has expanded its product offering to include personal and business accounts, an investment product and a savings account. Wise counts 16 million customers.

Next is N26, a German digital bank with eight million customers; Monzo, a UK online bank serving seven million customers; and Lydia, a French fintech startup that started as a payments platform before expanding into accounts, cards, lending, savings and investments, and which the BPC/Fincog report says has 5.5 million customers. However, Lydia claims seven million users on its website.

Top 10 neobanks in Europe based on the number of customers in millions, Source: Digital Banking in Europe, BPC and Fincog, 2023

Trying times bring new opportunities

As well as providing an overview of the current state of digital banking in Europe, the BPC and Fincog report also shares key trends shaping the market and the opportunities that exist in the region for both digital banks and businesses.

According to the report, the current economic landscape, characterized by rising costs of living, ongoing influx of migrants and disruptions to global supply chains, introduces several challenges that require effective solutions and innovation from entrepreneurs and businesses.

In times like these, digital banks have an opportunity to support their customers’ financial and mental well-being by offering superior user experiences and product features that improve the way they manage their finances and access financial services.

For migrants, this could be offering flexible and affordable financial solutions such as a wallet system linked to a bank account, the report says. The solution could enable migrants to receive government subsidies and support, access financial services and facilitate the integration process.

This wallet solution can be designed with a payment proposition, which can enable migrants to pay for goods and services, both in the host country and in the country of origin. It can also offer remittance services, a critical offering for foreign workers who often send money home.

Another recommendation outlined in the report is the possibility of banking-as-a-service (BaaS). By using BaaS, digital banks can develop and expand their portfolio of products and services in a more cost- and time-efficient way, the report states. Such offerings give them ways to tap into new revenue streams, acquire and retain new customers, and ultimately increase customer lifetime value at a lower cost.

Finally, the report argues that digital banks should explore new customer segments. Micro, small and medium-sized enterprises (MSMEs) in particular are a segment that has been particularly affected by the economic downturn and represents a significant business opportunity for the banking sector, the report states.

Despite being the backbone of the European economy, 20% of SMEs in the region struggle to access finance, the report said, and with venture capital funding drying up over the past year, the situation for many businesses has worsened.

One proposal is to develop a hybrid channel approach that combines a complete and robust digital offering for SMB customers, including onboarding and service via digital channels, with human-led engagements for more complex needs and services, the report says.