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Loss-making neobanks look on with envy as incumbents splurge cash in digital arms race

Loss-making neobanks look on with envy as incumbents splurge cash in digital arms race

In the week that saw Australian neobank Volt became the latest challenger to feel the effects of a tough funding environment, it has emerged that Wall Street giant Goldman Sachs is absorbing more than $1.2 billion in losses this year to back its move into the digital consumer market.

Volt is shutting down after failing to pick up sufficient funding to support the business as a going concern. It becomes the third of four Australian neobanks approved by the Government to throw in the towel, following Xinja Bank and 86400, which was flogged off to National Australia Bank.

Meanwhile, Bloomberg reported this week that Goldman Sachs' consumer business is set to lose $1.2 billion this year. This is despite the fact that the bank presented investors and analysts with a chart in early 2020 suggesting that the business would break even in 2022.

While there has been some consternation about the losses, Goldman's deep pockets have helped it amass 13 million customers for the unit, with deposits of more than $100 billion as the Marcus service draws users.

Last month, JP Morgan Chase revealed that it is set to lose around $450 million this year on its push into the UK retail market. The business has attracted half a million customers but is not expected to break even for five to six years.

Better news in the neobanking market comes from Dutch digital bank Bunq, which has just reported its first operational profit, as gross user fee income grew by 76% from €18.5 million in 2020 to €32.7 million in 2021 and the net fee income nearly doubled, reaching €23.1 million in 2021.

The total amount of money deposited at bunq increased by more than 35%, to €1.1B at the end of 2021.

The growth trajectory was rewarded in December with a €193 million capital raise, which valued the previously boot-strapped business at €1.6 billion.

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