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Neobanks on the rise: Established banks under pressure!
Europe's banks face challenges from neobanks in 2025; Growth, innovation and regulation shape the financial sector.
Neobanks on the rise: Established banks under pressure!
The financial industry is facing significant changes that will particularly affect established banks. An analysis by management consultancy Strategy& has shown that these banks will face tougher times in the coming years. The reasons for this include the end of the special boom for the financial industry after the interest rate turnaround in 2022 and the rise of digital neobanks, which are increasingly perceived as serious competition.
According to the study, the analysis relates exclusively to retail banks. Last year, the profits of European financial institutions increased by an average of 4%, which can be attributed to higher interest rates. However, at the same time costs rose by 3% and the period of interest rate tailwinds is nearing its end. Neobanks and payment service providers that operate exclusively digitally are growing steadily. For example, the Swedish payment service provider Klarna has acquired 93 million users in 26 countries. Strategy& expects that the largest neobanks will continue to grow and put pressure on traditional banks, although they will remain profitable and generate more revenue per customer on average.
Challenges and opportunities of neobanks
In addition to the challenges faced by incumbent banks, neobanks will also have to maintain their market position in 2025. While they see growth opportunities through innovation and growing demand for digital financial solutions, they also face intense competition and increasing customer demands. Neobanks, which are fully digital financial institutions without physical branches, are characterized by user-friendliness, speed and efficiency.
A report highlights that technological innovations such as AI, blockchain and biometric security are key growth drivers. Statista forecasts suggest that the neobanking market in Germany could grow by 13.82 percent by 2028. Emerging markets also offer significant growth opportunities. Nevertheless, neobanks face challenges such as intense competition, profitability, regulatory pressure and cybersecurity risks. To overcome these challenges, neobanks are relying on strategies such as diversifying revenue streams, investing in cybersecurity, and a strong focus on sustainability and innovation.