US-based neobank Moven is closing all accounts within its consumer unit on April 30, per American Banker. Moven was founded in 2011, initially operating its direct-to-consumer (DTC) model with basic features like a debit card, access to 40,000 ATMs, and personal finance management (PFM) tools including budgeting tools and nudges to help users save.
It has since expanded to also operate a business-to-business (B2B) model, Moven Enterprise, which offers white-label digital banking software for major banks like TD Bank in Canada and Westpac in New Zealand. Moven will continue to operate this fast-growing unit even after the consumer arm is shuttered. Moven Enterprise recently signed a deal with Saudia Arabian fintech STC Pay, and plans to soon offer its white-label mobile banking, budgeting, and wealth management software to US banks.
The coronavirus pandemic interrupted Moven’s plans to spin off its DTC business. The firm had funding lined up that would have enabled the spinoff, but that funding disappeared once the crisis hit, Moven founder Brett King told American Banker. At that point, the firm determined it would likely have to absorb a $2 million loss in 2020 if it continued to operate the consumer-facing side of Moven. King acknowledged Moven’s early launch as another setback, saying that if it had started later, its “funding cycle on the direct-to-consumer side would have been very different.”
Moven’s business model was largely dependent on funding — neobanks should assess their operating models so they can sustain operations even if funding falls through.
Moven’s reliance on funding made it highly susceptible to market shocks. Moven was one of many neobanks offering services at little or no cost, leaving it reliant on outside funding to sustain its business. King noted that Moven faced an additional hurdle in that divided attention from investors between its two businesses created an “ongoing funding challenge.”
With the outlook for funding appearing dim as the coronavirus pandemic continues to rock global markets, it will be difficult for those neobanks that rely on funding to sustain operations if they don’t also have other sources of revenue.
Neobanks should focus on establishing revenue streams apart from funding to sustain their businesses. Neobanks struggle to strike a balance between offering services for free and reaching profitability. Their free or low-cost accounts are a major draw to users, but they’re also a big hit to neobank balance sheets. In fact, King acknowledged that Moven would incur the $2 million loss specifically because it didn’t charge much for its services. And while neobanks have some foundational advantages like lower operating costs relative to legacy banks, many aren’t generating consistent revenue to offset even those costs.
One approach to establishing a more stable source of revenue is opting for a “freemium” model, which includes a base product for free, but additional features for a fee. This could help ensure that neobanks still have money coming in even if funding abruptly disappears.
Source: Business Insider
Clarification: The March 31, 2020, edition of Banking Briefing did not include information about Moven Enterprise’s deal with STC Pay or its forthcoming software rollout plans. This article has been updated to include that information. (April 7, 2020)