Building a neobank in 2021 was wild. There was free-flowing capital, lots of excited customers flush with extra cash, and BaaS-stack companies popping up everywhere to service demand. I felt like the most popular girl at school at Money 2020, seeing Daylight cards being used in the wild and people I’d admired in the industry recognizing the name of my company and telling me how impressed they were. 

Then, in early 2022, everything changed. In the space of a month, VC money suddenly dried up and the business plan of “Raise tens of millions, don’t worry about burn, just scale,” was no longer valid. We went from adding multiple new team members a week to cutting our team in half in a brutal, messy layoff. I remember crying upstairs in an Airbnb at a bachelorette party over a spreadsheet of our business model realizing that in this market, the math just wouldn’t work without a massive change in our unit economics and our revenue sources.  

If you need 100,000 customers to start earning meaningful interchange, and it costs you $100 to acquire a customer and $10 to onboard a customer, then you need $11,000,000 just to onboard customers. If the run-cost of servicing those customers is $5, then you need $500,000 a month to keep them happy. Once you start adding in things like activity rates and churn, you start to see how this model very quickly becomes unsustainable in a fundraising market that’s dried up. This doesn’t even speak to becoming profitable; these figures are just the starting point for making revenue on interchange.

During my time at Daylight, I got close with many other neobank founders and realized that everyone is facing the same problem: Customer acquisition is too expensive and the unit economics suck. After Daylight was acquired, I’ve been able to maintain these relationships and advise them on strategy moving forward, but I wanted to share more detailed thoughts here on the problems neobanks are facing, and how we might solve them.

Costs

User acquisition

We were very proud of our community-driven acquisition strategy at Daylight. The problem for us was that it either seemed to require a lot of upfront investment or didn’t seem super scalable.

Digital ads worked to some degree, they gave us a simple equation of “Add more money, get more leads”, but typically generated low-quality leads and led to a lot of inactive accounts. 

On-the-ground marketing worked a lot better for us in terms of quality but required a lot more upfront investment. We had three in-person launches in three cities that were moderately successful, but ultimately, they didn’t yield us enough of a return to keep going. It just didn’t feel scalable.

The uncomfortable fact is that the majority of people don’t want to change their banking products unless they are having a really terrible or expensive experience with their current providers. The trad banks have caught onto this and gotten rid of the typical churn-inducing fees like overdraft charges, and as such, it’s super hard to convince someone to switch their financial relationships over.