Small Business Neobanks Are Outflanking Traditional FIs

Small business neobanks have become a bona fide threat, especially for community financial institutions. A growing number of neobanks are competing to serve small businesses, fueled in part by the need for tech-driven financial services during the COVID pandemic and growth in the large and diverse freelancer market. Neobanks make compelling alternatives because their features are far more advanced and extensive than those from traditional FIs, some cater specifically to freelancers, and they continue to innovate faster than traditional FIs. Nonetheless, community FIs can counter neobanks by emulating their strengths and exploiting their weaknesses.

Key questions discussed in this report:

• Do small business neobanks pose a threat to FIs, and which neobanks stand apart? 
• What are small business neobank table stakes features that go beyond traditional digital banking?
• What are their specialty features?
• How are neobanks serving freelancers and sole proprietors?
• What countermeasures can incumbent financial institutions employ?

Companies Mentioned:

Airbnb, Amazon, Arival, Azlo, Bank of America, Baselane, BetterHelp, biz2credit, Bluevine, Brex, bunny.money, Celtic Bank, Citibank, DoorDash, eBay, Etsy, Found, Grasshopper, Guava, Highbeam, Instacart, Joust, Kabbage, Lance, Lendency, Lili, Lyft, Mercury, Move Financial, Nearside, Northone, Novo, Oxygen, Paypal, Quicken, Relay, Shopify, Simple, Square, Stripe, Talkspace, Teladoc, Treasure Financial, Uber, Venmo, Vergo, Viably, Wave, Wells Fargo, Winden, Wise, WooCommerce, Xero, Zilbank