Welcome back to the Protocol Power Index, a ranking of the most powerful companies by tech industry subsector, as well as the companies best positioned to challenge them. This time: neobanks .

By just about every measure, neobanks are booming. In the leaderboard below, the company that grew its valuation the slowest over the course of the past year still grew by 52%. The company that upped its headcount the least still grew its workforce by 10%. And four companies have raised more than $1 billion over the years, including two that managed that feat in a single round.

Neobanks sprouted up en masse in the mid-2010s as alternatives to the traditional banking system, and in some regards, they followed the same pattern as many post-financial crisis fintechs. Targeting traditional pain points — high overdraft fees, long account-opening wait times, dismal interest rates — the new wave of neobanks attracted customers with the promise that digital services would beat the brick-and-mortar approach. Massive rounds and soaring valuations were, at first, built on the lower overheads derived from neobanks piggybacking on the regulatory infrastructure in place at traditional banks.

As the market has matured, the number of strategies driving further growth has exploded. Varo Bank landed a bank charter . Nubank and Revolut took advantage of local regulatory environments to build powerhouses in Latin America and Europe, respectively. Companies like Greenlight and Current targeted underserved markets.

Still, the neobank market is at yet another inflection point as traditional banks and fintechs alike race to layer services — including banking — into super apps that could disrupt the neobank disruptors. Meanwhile, the now-established neobanks are beginning to make their moves to the public markets, peeling back the curtains on the long-term viability of the neobank model.

You’ll notice we haven’t included big banks going digital, like Goldman Sachs with its Marcus account, or fintechs that are diversifying, such as SoFi, because it’s not possible to pick apart how they compare with the neobanks that began as pure plays. In a year or so, as more and more fintechs become one-stop shops, the likes of SoFi and PayPal could end up in the same Index, but as of now the strategies are still nascent enough that we’re separating neobanks from investing services and consumer lending companies.

So, before all that unfolds in the coming months, who has control of the market now? And who is poised to take advantage of all the change that’s coming this space’s way?

Ranking	Company	Score
1	Nubank	62.04
2	Revolut	59.14
3	Chime	52.89
4	N26	49.11
5	Monzo	41.06
6	Starling Bank	40.63
7	Current	38.97
8	Varo Bank	38.09
9	Greenlight	37.97
10	Dave	36.86

Explore the Data

The Protocol Power Index is designed to view power through a holistic lens that reflects how modern tech companies amass and exercise their strength. To do so, the Power Index takes into account 30 metrics across five categories — Economics, Leadership, Innovation, People and Politics & Policy — and synthesizes them into a single Power Score. Read our full methodology statement here .

What happens next?

Several forces stand to shape the future of neobanking in the coming years: the blurring of lines between traditional and digital banks, the further unification of fintech services beyond banking and the emergence of blockchain as a means to boost accessibility.

Momentum Ranking	Company	Score
1	Nubank	78.82
2	Current ↑	75.29
3	Revolut	63.53
4	Dave ↑	61.18
5	Greenlight ↑	57.65
6	Varo Bank ↑	56.47
7	Chime	54.12
8	N26	43.53
9	Monzo	42.35
10	Starling Bank	25.88

Lines between traditional banks and neobanks are blurring , and that will lead to more direct competition between companies in either sector.

• Until recently, holding a charter helped distinguish traditional banks from neobanks. Traditional banks in the U.S. are legally required to hold a charter to perform basic functions such as lending and accepting deposits. Neobanks tended to avoid charters because they were expensive, remained difficult to obtain and came with a host of regulatory requirements.
• Neobanks instead focused on providing front-end services to clients while partnering with chartered banks on back-end banking. The fintech sector in general saw charters as an encumbrance to growth and innovation.
• But as neobanks grow, it can be more cost-effective to obtain a charter. Doing so allows a neobank to cut out a middleman banking partner and the associated fees. It comes with higher compliance costs, but that can more than pay for itself if the neobank is sufficiently large.
• Several fintechs, like SoFi and LendingClub, acquired charters by outright purchasing an existing bank. LendingClub, for instance, spent $185 million in 2020 to acquire the charter-holding Radius Bank. Despite the high price tag, the acquisition has been heralded as a tremendous success. LendingClub’s stock jumped 50% after the company posted a surprise profit in Q2 2021, which the company attributed in part to the charter purchase.
• Neobanks can also apply for a national banking charter through regulatory agencies. This is a complex process and requires the neobank to build internal compliance mechanisms from the ground up. It can take several years to obtain a new charter. For instance, it took Square more than two years .
• There are signs of that changing. In 2020, Varo became the first fintech company to receive a national banking charter from the Office of the Comptroller of the Currency. This could bode well for other fintechs, since the OCC has signaled that it wants to make it easier for tech companies to receive national banking charters.
• But if neobanks increasingly hold charters, what gives them an advantage over traditional banks? Neobanks attracted funding in part because investors thought nimble tech companies could out-innovate traditional banks. This increasingly looks like a false dichotomy. Neobanks are growing and taking on a lot of the same regulatory and bureaucratic baggage that traditional banks have — only neobanks aren’t nearly as large and powerful as companies like Goldman Sachs and JPMorgan.
• Traditional banks have also narrowed the gap on their end, closing their branches at record rates and launching their own full-stack, digital consumer banks, as we’ve seen with Goldman Sachs’ Marcus.
• These trends will mean more direct competition between traditional banks and neobanks. It could also spark an acquisition frenzy. Rather than neobanks acquiring charters, banking behemoths could acquire neobanks, particularly for the sake of expanding geographic reach. For instance, this past summer, JPMorgan purchased a 40% stake in the Brazilian neobank C6.

Neobanks will layer on additional banking services to their core products in a bid to boost revenue. But they aren’t necessarily best positioned to capture these opportunities.

• Checking accounts are the Costco hot dogs of banking services: They get people in the door, but they aren’t generating all that much money on their own.
• Neobanks are likewise counting on customer relationships to drive future success. They tend to see gaining a user as the most important and most difficult step; once that relationship is established, it becomes much easier to sell additional services to a customer. Those services would ideally have higher margins than simple digital wallets and checking accounts.
• MoneyLion, for instance, generated just $2.3 million of revenue from net interest income on financial receivables in Q3 2021. By contrast, it generated $3.2 million in revenue that quarter from recommending affiliate products and services and $30.4 million in fee income, which included fees on services like paycheck advances, managed investments and personal loans.
• The problem? Competition. Neobanks can build on their existing financial relationship with customers, but so can consumer trading platforms, digital wallet apps (Apple, PayPal, Google), crypto exchanges, “buy now, pay later” services, and so on.
• Just writing that list shows that the definitions are messy. For instance, Robinhood is a consumer trading platform, but it also functions as a crypto exchange for some customers and a bank for others (you can route direct deposits into your Robinhood account and use its Debit Card with Cash Management features). People have more options than ever in terms of finance super apps, and the more digitally savvy customers are already using multiple apps that offer overlapping services. That means more competition for neobanks, and oftentimes competition from companies specialized in the realm of the more lucrative “add-on” services.

And then there’s DeFi. There’s a slim possibility that disruptive blockchain technologies soar in popularity, particularly within underbanked countries.

• Some blockchain companies are attempting to grow market share in developing nations by taking novel approaches to onboarding customers. One example is Worldcoin , which is backed by Andreessen Horowitz and Coinbase Ventures. Worldcoin is offering cryptocurrency to people in exchange for their iris scans, and it will use those scans as verification for a digital bank account. The company wants to layer services on top of that account, similar to the general neobanking model.
• More broadly, DeFi banking protocols could appeal to individuals living in countries with unstable reserve currencies . They are also relatively unregulated at the moment, which could lead to lower cost structures that get passed onto consumers in the form of better rates. (It could also mean more risk for consumers, since banking regulations often require things like deposit insurance.)
• It’s worth reiterating that DeFi doesn’t pose a significant threat to the traditional banking system as a whole. It’s in the interest of powerful nations, including China and the U.S., to maintain control over central banking systems. That helps explain why China cracked down so hard on crypto mining and why the the Securities and Exchange Commission wants greater authority to regulate crypto markets.

Methodology

To rank the competitors, we've developed a formula that encapsulates 30 criteria. Those criteria span five groupings that factor into power: Economics, Leadership, People, Innovation & Politics and Policy. We then developed two systems for weighting the criteria — one for measuring power and the other for measuring momentum — such that companies can be scored on a 0–100 scale. Read our full methodology here .

Update: This article was updated to include details of Nubank's IPO, which are reflected in the text but not the ranking's underlying data. Updated Dec. 10, 2021.