Being a founder is like a game of cat and mouse. First, you attack (and disrupt) but — if you're successful — you get attacked back.
Nowhere is that more evident than at the neobanks which, after shaking up finance for the past five years, are now being taken on themselves by a fresh wave of newcomers.
These new fintechs are catering specifically to 'Gen Z': the under 23s, who are today's largest generation, constituting 32% of the global population, and are beginning to enter the workforce.
That could prove dangerous to the early neobanks, whose core demographic is currently aged 32 to 35, but will need to appeal to tomorrow's youngsters to continue growing.
While neobanks and their shiny metal cards have proven popular with millennials, it's a different game entirely with Gen Z, according to Nafeesa Jafferjee, who cofounded Quirk — a new financial-advisor app for youngsters.
"Neobanks and banks [generally] are still a 'one-size-fits-all'. But with the younger generation — because they were exposed to tech from the beginning — it's like, what can they do for me and my lifestyle," she tells Sifted.
"It's trust, and impact, and if you don't touch on those issues, you lose and can't engage."
The TikTok generation is also becoming financially engaged earlier, she says, spurred on by the hoard of 'Fin-influencers' online.
"[Money] is not fun, you don't deal with it till you're older, but that's completely changed now...They care about life and not just numbers...The neobanks aren't making this fun and engaging."
She's right: of Monzo's 5m users, only around 2% are under 18.
That's provided ample space for a burst of Gen Z-focused fintechs (shown below). They range from pure banking apps (e.g. spending cards and storing money) to apps for payments, savings, financial insights, wealth management and even specialised lending.
That means it's not just neobanks who need to watch their backs. It's also the broader array of consumer fintechs — including Nutmeg, Dreams and Cleo — who will now need to fight harder to tap into the younger market.
In other words, this subsector is no longer just pumping out parent-controlled digital wallets; it's expanding out into more sophisticated products.
More Gen Z-focused fintechs are on the way too.
One gearing up to launch in the summer is XPO, an app targeting content creators — many of whom are under 22 — with a speedy invoice-financing solution. They are planning to pay influencers upfront via a partnership with Sonovate, at no cost to the individual.
Founder Lotanna Ezeike told Sifted that he believes influencers will use the XPO app as their main account, where they will be paid directly, therefore bypassing the need for a Monzo. XPO recently raised $1m from Blue Wire Capital, which is also an early investor in Monzo.
It seems drastic that this generation could deviate so much in their banking needs from their older peers.
But investors are buying into the idea that the neobanks are actually today's "olde-banks", making them out of touch with today's youth.
In April 2021 alone, investors ploughed $580m into US fintechs for Gen Z.
The trend is catching on in Europe too.
The latest app to catch investors' eyes is Germany's Wajve, which has just secured €5m in seed funding led by EQT Ventures, following early backing from Finleap.
Wajve is making a bid to be Germany's go-to app for teens, by offering daily financial insights and easy access to student loans. The app already has over 100k registered students, and has a strong pedigree of founders behind it, focused on helping Gen Z attain financial stability and directly competing with Germany's N26.
"While Generation Y (30 to 40 year olds) is known for its desire for freedom and flexibility, Gen Z has, in contrast, a much more vital need for stability and security...having experienced substantial financial upheavals," says Bastian Krautwald, CEO and cofounder of Wajve.
By helping youngsters "plan for their financial futures", Krautwald and his investors think they have found a gap in the market.
Nafeesa Jafferjee, Quirk's cofounder, also says local investor interest in this space is growing.
"It's really changed this year. We faced two main issues [in the last fundraise] that are changing now that things are opening up again. First, they were very risk-averse with consumer fintechs...and I think that's finally shifting. And second, in the personal finance management space, there was a lot of risk aversion too that's going [away]."
The new wave of fintechs won't have it easy. Many will need to compete with the existing banks and neobanks, who have built up strong brands over the years.
To do that, they're getting savvy. Among the top trends in the space are:
- A social aspect: This includes allowing users to 'ping' their peers when they've paid off debt or spent somewhere. For instance, apps like Finary are providing a social space for investment chatter.
- Messenger-based banking: This is the approach taken by Zelf, an encrypted chatbot that manages users’ finances and sends money via Facebook, WhatsApp, Telegram and Viber.
- Influencer power: Fintechs worldwide are now using social media celebrities to promote their services, to find younger audiences.
The plan is that this will help the new fintechs leap-frog the banks, developing brand loyalty before users turn 18 (when traditional banks target them).
Fortunately, the fintechs are tapping into ripe demand; 78% of millennials plan to use more digital tools in wealth management versus 31% of Boomers, according to EY. That figure is likely even more compelling for Gen Z, who have the highest rate of digital consumption, and many of whom flocked to investing during the panemic.
Still, the older neobanks have started to fight back. For instance, Revolut and Starling have both launched 'youth' products for users as young as seven that are synced with a parents' account.
Beyond that, the new wave of fintechs will need to prove they can (eventually) make money. Consumer fintechs have not proven to be the most profitable thus far, prompting the newcomers to rely more heavily on subscriptions than on interchange.
Gen Z has also proven more hesitant to debt, which makes traditional lending an unreliable revenue model.
Still, for now, fintechs can take advantage of the vast amount of capital being thrown at Gen Z solutions. At least in that respect, the neobanks all have something in common.
For insights on 'how fintechs should engage with Gen Z, read our piece here