The 'Neo-Banks' Are Finally Having Their Moment

After the financial crisis 10 years ago, unhappy customers were expected to flee the megabanks for smaller competitors. It didn't happen. And the big banks became even more entrenched. Now another wave of alternative banks are at it again, and they say they've learned from the mistakes of the upstart banks that tried -- and failed -- before them. The New York Times: Chime, the biggest new name to pop up, has opened two million fee-free online checking accounts and is adding more customers each month than Wells Fargo or Citibank. That has inspired a crop of newer start-ups, like Empower, which started its first fee-free online checking accounts, with lots of digital bells and whistles, in October. Venture capitalists are pouring money into American start-ups that are offering basic banking services -- known as neo-banks or challenger banks. In 2018 so far, American neo-banks have gotten four times as much funding as they did last year, and 10 times as much funding as they did in 2015, according to data from CB Insights.

Big players from outside the consumer banking industry, like Square and Goldman Sachs, are also moving in. 'In consumer banking, you have what is one of the largest industries in the United States, in terms of profits, and at the same time one of the least disrupted industries, and the most unpopular with consumers,' said Andrei Cherny, the founder of Aspiration, a neo-bank that has attracted nearly a million customers. 'Those three things create a perfect storm for disruption.' The persistent unpopularity of big banks has been a boon to the newcomers. And they are helped by a new attitude among financial regulators who have grown more comfortable with online banking and young customers who have no hesitation about cashing a check or sending money on a phone.

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