I was reading some posts from my mates Chris Skinner and Ron Shevlin that got me thinking.

Since the first neo banks and early challenger banks¹ emerged in the period from 2008–2014, we’ve seen a flurry of innovative new features, apps, and strategies. The largest of the neo’s now measure in the millions of customers and active users, and are starting to take real market share in markets like the UK and China. This has subsequently seen these neo-style banks raise more than US$2Bn in funding in the space of just a few years. The largest neobank in the world is China’s WeBank, with more than 180 million customers — more than JP Morgan Chase’s retail banking division.

One of the debates had on Twitter over the last months was how much challengers had really disrupted markets like the UK, and how far behind the incumbents were on some of the basic features that challengers tout to their users. Additionally, for those that argue that banks can be as agile/nimble/<<insert corporate PR speak here>> as Fintech startups, I thought let’s examine the record of major innovations we’ve seen in banking the last 20-30 years and the more detailed innovations around design and CX that the neos & challengers have led on, and see who did what first. This should show us how innovation is distributed across technology-led tech players, versus aspirational incumbents.

I’m sure we’ll get the fast follower argument here too. In any case, here is my best attempt to document the major innovations in the sector and who was responsible for what innovation, who leads it today, and if there’s any lag between deploying in one space (say Neo banking) and seeing it arrive in the other space (in a incumbent created digital pure play), for example. Even though I’ve been working in the space for the last 25 years, if I got something wrong here, let me know and I’ll update it.

Internet Banking

In November of 1993, Stanford Federal Credit Union, a member-based credit union established by Stanford University employees, conducted the first online transactions for a US financial institution. In the following October of 1994, it was only fitting that the first bank to launch a website on the World Wide Web was the same Stanford Federal Credit Union. Wells Fargo followed on May 18, 1995 with the first online account access via the internet, and the first of the Fortune 100 banks to support the web.

The first strongly online branded and marketed banks, but still utilizing branches for account opening were Tesco Bank and Virgin Money in the UK. You could certainly argue First Direct, was the first direct banking proposition that was branchless, launching via phone in 1989. But they were late to the online play initially.

The first pure play internet banking proposition was Egg, founded October 1998 in Derby, United Kingdom as a banking initiative of the UK Insurer Prudential plc. It was closely followed by the First Internet Bank in the United States and ING’s Direct brand in Australia both established in 1999. This was a pre-cursor to the neo banks of the mobile app “fintech” era, but wasn’t substantially different from a traditional bank. Egg didn’t have branches and they were the only digital-first banking proposition globally when they launched. But the most coveted achievement Egg can claim is for the very first online account opening proposition. Citibank and Egg share the claim of the first internet-only credit card offerings (iCard was the Citibank brand positioning back in 99').

In 2008, UBank, a subsidiary of NAB launched in response to ING’s traction in the Australian market. It was the first top 50 global bank to launch a spin-off online pure-play brand.

INCUMBENT FTW: In these early days it was traditional players experimenting with the web. There was no equivalent of the dotcom boom in the online financial services space that paralleled the general e-commerce explosion globally.

First Online Wallet

Pre-dating the mobile wallets we carry in our phones today, the first internet, online or digital wallets were only available via browsers. Generally in those days, we called them e-wallets. There were online shopping websites available from the first days of the web, PizzaHut.com was the first online store way back in 1994, not long after NetMarket, Amazon, eBay and others launched.

The first widely used digital wallet that was accepted or facilitated payments across multiple online stores was, of course, PayPal. PayPal started its life as Confinity back in 1998, then merged with Elon Musk’s X.com in March of 2000. They IPO’d in 2002 months before being acquired by eBay. eBay was largely responsible for making PayPal the globally accepted form of payment it is today, but they spun off PayPal back into a separate entity in 2015. In China, Taobao launched AliPay in 2003, about a year after PayPal’s IPO — it surpassed PayPal as the world’s largest mobile payment platform in 2013.

NO BANKS TO BE FOUND — FINTECH STARTUPS/BIGTECH FTW

First Mobile Wallet

While PayPal and AliPay were battling it out for online payments, the first mobile transactions were heavily reliant on secure NFC capabilities built into handsets to mimic the swipe of a card. This relied on specific hardware and specific point of sale systems. But actually, before NFC we did experiment with very simple sms-based payment systems.

The first generation of mobile payment systems can be traced back to 1997, when Coca Cola launched a handful of vending machines in Helsinki, Finland that let customers purchase a can of drink via simple text messages. Obviously very different from the mobile wallets we use today, this could be considered the first attempt at mobile payments globally. Text-based (read SMS) payments and online ticketing stores for movies, etc also started to pop up on early WAP-based portals and on the iMode platform in Japan.

By 2007 eMoney wallets embedded in Japanese handsets was already very popular for things like public transport and at 7-Eleven. Merchants starting accepting “wallet mobile” payments all across Japan. They started with BitWallet back in January, 2001, but EDY, Felicia, and Suica started to compete for wallet mobile traction more broadly. SoftBank and NetBank jumped into the fray too.

Google was the first mobile operating systems provider to launch a true mobile wallet App, back in 2011. Originally designed to utilized NFC secure element, it only worked on compatible phones with the right hardware. Apple Pay didn’t follow until 2014, to the chagrin of many. In fact, in those early days we used to joke NFC stood for “not for consumers”.

Last year, however, mobile wallets overtook plastic card payments globally for the first time. AliPay has over 1.2 Billion mobile wallet users across their network which includes M-Pesa in Africa, PayTM in India, Kakao in South Korea, G-Cash in Philippines, etc. In China AliPay and Tencent WeChat transacted over $22.5 Trillion of mobile payments last year alone, compared with nearly $21 Trillion for all the world’s plastic cards.

Why didn’t banks try to enter the mobile wallet space? Those that did, tried far too late to be taken seriously as contenders. Don’t even get me started on the whole ISIS mobile wallet that the US telcos collaborated on…

NO BANKS TO BE FOUND — FINTECH STARTUPS/BIGTECH FTW

First Banking on Social Media

Social media was a no go zone for most banks. In November 2012, the New York Times reported that most Wall Street firms and banks had actually banned Facebook, Twitter, gmail and social media platforms from their workplaces. In June of 2009, First Direct became the first bank to utilize social media for communications creating their online newsroom, and in doing so became the first traditional bank to tweet out a status update too.

But predating Twitter was MySpace. As Jim Bruene pointed out in this finovate post from 2006 “Banking the MySpace Generation”, there wasn’t much banking action at all on the early social media platforms — platforms that were seen as marketing channels for millennials back in those days, and neither transactional or community in nature.

Fidor was the first challenger to utilize social media from a platform perspective, joining and posting from Twitter in January of 2009, and launching a Facebook community page the following year. However, the first bank to be launched on social media, using their pre-registration approach was arguably Bank Simple. Simple used their social media presence with great effect to generate early interest, and to bootstrap acquisition in the early days. Profiles on Fast Company, TechCrunch and others didn’t hurt their social media brand efforts either.

Simple was definitely the first to do invite promotion via social.

BANKS RARELY FOUND — FINTECH STARTUPS FTW

First Mobile Bank Account

For this category we have two winners. A joint-venture between KDDI and Bank of Tokyo-Mitsubishi UFJ was established in June 2008, and was the first mobile bank utilizing iMode to offer account opening and KYC on a mobile and online platform. It linked to the national drivers license database in Japan to verify customers.

The first app-based Mobile account was launched by Movenbank in November of 2012 in a closed beta, and was the first neobank or bank account globally that offered a purely app-based account opening process. Both Jibun and Moven delivered physical credit or debit cards to enable payments at the point of sale, ATM withdrawals, etc.

IT’S A TIE — INCUMBENT IN JAPAN, STARTUP IN THE WEST

First Neo and Challenger Banks

I’ll use the common industry vernacular here to separate these two categories of digital-only banks that evolved in the last decade or so. Neo Banks were retail banking service providers that launched typically without a license on top of an existing bank with a charter, the term first started to appear in blogs around 2006. Challenger banks, are the UK and European equivalent that emerged for startup banks that had one key difference; they utilized the first new charters offered across Europe around this time. The term emerged in the UK around 2010 as a way to describe the first banks to “challenge” the High Street players in more than 100 years.

Perkstreet Financial, launched by Dan O’Malley (co-founder was my pal Jason Henrichs) in November 2008 was the first US-based challenger to launch using the neobank playbook, but they closed up shop in 2013 due to lack of funding. They did not provide real-time account opening online, however.

Starting just a few months after PerkStreet was the neobank Bank Simple, founded in Brooklyn late-2009 by Josh Reich and Shamir Karkal. Bank Simple became just Simple as they got closer to their launch in the Summer of 2012. Simple did not have a US banking charter, and instead launched on top of the Bancorp platform. Simple faced some critical issues in 2012 when Google’s acquisition of their payment processor TxVia threatened to derail their early progress. Simple launched initially with an invite via web and social media, then launched online and only later deployed their first mobile app. Moven launched as the first example of a “mobile-first” neobank in August of 2010 with the domain registration Movenbank (the contracted form of Move-and-Bank). GoBank, a retail online mobile-bank brand attached to GreenDot, followed in early 2013. Bank Mobile, who often claimed to be the first “true” mobile bank in the world, didn’t launch until 2014. In 2013 American Express attempted to join the fray with Amex Serve and Bluebird — all of which predated Bank Mobile, of course.

The first Challenger Bank at the intersection of the social media and smartphone era (mostly online in those days still) was Fidor Bank in Germany founded in mid-2009 by Matthias Kröener, just 3 months before Simple. Fidor was the first of a new era of digital pure-play banks that received special regulatory treatment and were explicitly tech-first in their design approach. Yes, Metro bank launched in 2010 as a UK challenger but had very limited digital support, no social media and no mobile app in the early days — also you were limited to opening an account in a branch, which disqualifies them in the digital challenger category.

Vernon Hill, the co-founder of Metro, was an old Commerce Bank founder in the US, who still believed firmly in branch networks as service differentiation, reportedly pushed back on the early efforts to incorporate digital into Metro’s brand and launch strategy. This, in turn, is said to have led to Metro’s co-founder Anthony Thompson leaving Metro to start Atom Bank a few years later in 2016, with a clear digital imprimatur.

The first true digital pure-play challenger in the UK though was Starling Bank, founded by Anne Boden, an industry veteran that saw the “technology” light. That wasn’t until 2014. Of course, today Monzo, Revolut, N26 and other household names in the challenger space are some of the fastest-growing retail banking brands in the world. Arguably BBVA and DBS joined the digital fray a few years into this, but they are neither wholly digital nor mostly pure-play. DBS didn’t offer online account opening in its home market till 2016, as an example.

NO BANKS TO BE FOUND — FINTECH STARTUPS FTW

First Crypto Wallets

The first crypto-wallet application, simply named Bitcoin, and occasionally referred to as the Satoshi client, was released in 2009 by Satoshi Nakamoto as open-source software. Of course, it could only store bitcoins. Arguably the first attempt at a sort of blockchain-style asset grid incorporating digital asset custody was made by SWIFT’s Innotribe unit around 2010–2011, but was shut down soon after.

As bitcoin exchanges emerged, then cloud-based crypto wallets held by exchanges like MtGox and others became quiet common, but soon became quite controversial. As alt-coins started to multiply, both independent software or cloud-based wallets and hardware-based off-line secure storage vaults became popular. It was reported the Winkelvoss twins stored their private keys on USB thumb drives, stored in physical safety deposit boxes in banks around the US. Thus, ironically storing their Bitcoin fortune in a pseudo-physical medium.

The first mobile wallet app approved for Bitcoin payments by the Apple and Google App stores in 2012 was designed by a bitcoin enthusiast, Andreas Schildbach, and used QR Codes. It was called Bitcoin Wallet.

NO BANKS TO BE FOUND — FINTECH/CRYPTO STARTUPS

First Online Trading and Robo-Advisors

In 1995 Schwab.com was the first stock trading firm to provide a website. Schwab followed up with the very first online trading platform in 1996, CommSec in Australia followed shortly after, as did eTrade.

Betterment launched in 2010 as the first digital wealth management advisory business online with an automated wealth management and trading platform, which they dubbed robo-advising.

TRADERS & FINTECH STARTUPS

Milestone Conclusions

If you are keeping score, it looks like this for the biggest digital milestones in the last 25 years:

INCUMBENT BANKS: 3 (Internet Banking, Mobile Bank Account, eTrading)
TECH STARTUPS/GIANTS: 2 (E-Wallet, Mobile Wallet)
FINTECH CHALLENGERS: 7 (E-Wallet, Mobile Wallet, Mobile Bank Account, Social Media, Neo/Challenger, Crypto Wallet, eTrading/Robo-Advisor)

Before we finish this assessment though, let’s also look at major milestones purely in app-based banking which has defined the way people access pure-play brands like N26, Monzo, Moven, Xinja, Revolut, etc…

Major Mobile Milestones

As an industry analyst, I’d rate these as the major milestones in the mobile banking and payments journey since Apple launched the app ecosystem.

1999: First Internet Banking via WAP Browser — Fokus Bank (Norway)

2004: First Mobile P2P Payment Service (Mobile Web)— PayPal

2007: First NFC Payments — E-Money providers Japan (EDY, Suica, Felica)

2008: First Mobile Banking App — Bank of America

2008: First Fintech Mobile App — PayPal

2008: First USSD SIM-based Wallet — M-Pesa (Kenya)

2009: Mobile Account Opening — 09' Jibun (Japan), 12' Moven (US), 17' Starling (UK)

2010: First Western NFC Payments Roll-out — City of Nice, France

2012: First Mobile ATM Withdrawal — RBS, NatWest, ANZ Banks

2012: First Mobile Cross Border Transfers Platform — Transferwise

2012: First Mobile Homepage Innovation — Moven Spending Meter

2012: First Mobile Transaction Receipt — 07' EDY (Japan), 12' Moven

2012: First Mobile-App Card Suspension — Amex/Moven/Simple

2012: First QR Code Payment Wallet — 12' Bitcoin Wallet (US), 14' Tencent WeChat (China)

It still looks dominantly tech-first for these design and engineering innovations. Paul Volker, when he was Chairman of the FED, famously said the last real innovation in banking was the ATM machine.

What We’ve Learned in the Last 25 Years?

When you look at innovation over the last 25 years, banks started incorporating new ‘channels’ slowly when the internet arrived, but unlike in other sectors being effected by e-Commerce growth, there were clear barriers to entry for digital banking in those early days. Once the floodgates of innovation pushed regulators to allow tech startups to play in the space, none of the major innovations have honestly been propagated by incumbent banks. Today 100% of neo/challenger banks offer online account support for their entire product suite, there are only two incumbent banks in the US that do the same — USAA and Capital One. HSBC still doesn’t have basic online account opening outside of a branch, 25 years later. With Chase and Citibank you can’t open a business account on lie today either. Less than 10% of US banks offer mobile account opening today at all. Features like suspending a debit card in-app or categorization of spending, have come fully 5–7 years after the first neobanks incorporated those same features. Banks waited, in some cases more than 8 years, to launch their first websites.

Given the growth in challenger banks, the healthy investment cycles in startups… the likelihood that this innovation gap will be closed by a fast follower incumbent approach is extremely unlikely. This means that customers are already beginning to learn in markets like the UK, and the EU that the most innovative banking experiences are in the hands of new challengers.

Banks don’t lead innovation on technology, they’re generally forced to the party by someone else. This is their modus operandi, and what must change at the heart of the industry if banks are to survive in some shape or form. But we’ve seen it in many sectors as technology has displaced incumbents, so the banking sector’s overall response should be a complete surprise.

Can incumbents innovate? Sure. As a class are incumbent banks innovating at anywhere near the rate of the emerging challengers and neos? No. Clearly, in terms of spend that results in new features, new capabilities and changing grass-root behavior when it comes to banking, the best bang for buck innovation is with technology first players — whether that is tech or fintech in nature.

Does this represent market-level disruption of banking? You tell me…

If you are thinking about what the banking ecosystem will be like in 10 or 15 years, explain to me how you think banks, on the whole, will successfully redefine themselves given their current rate of innovation compared with tech-first organizations? This is the threat.

[1] Neo Banks emerged first, they are startups like Simple and Moven that launched their brand and app on top of other bank-as-a-platform partners (handling regulated deposit taking), while Challenger Banks emerged out of the UK using specialized Fintech charters (which don’t exist in the USA). Given the neos predate challengers, they could be considered a sub-category of digital neobanks, equipped with a charter. In that way, every challenger bank that is digital-first in nature, would also be considered a neobank. The term neobank predates the challenger terminology by about 4 years.