What happened to neobanks? Did you notice anything?
Yes, for many consumer neobanks, customer acquisition cost (CAC) has increased over time.
Why is it happening?
It is because nothing is constant. One reason for increasing CAC is disappearing “acquisition arbitrage” that many neobanks once relied on.
Originally, neobanks could simply take advantage of traditional banks’ weakness in acquiring customers.
Neobanks were good at targeting through digital channels, they eliminated fees (often subsidized by venture funding), and attracted customers through high-yield savings rates.
And neobanks targeted mainstream, middle-income consumers that had good, but not great banking experiences.
Pay close attention it is mostly about price cuts, little user experience through better apps but not product differentiation!
Over time, however, acquisition became more difficult — and traditional banks became better at digital acquisition.
Competition increased, product sets converged, and the Fed cut rates, making high-yield savings rates difficult to offer.
As I said nothing is constant, traditional banks started to adapt to new realities, and over time, that acquisition advantage dissipated.
