Challenger Banks: What the Sell-Side is Telling Us

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July 2026 — Tom Noyes

Eight months ago I wrote The Neobank Revolution? Not how I see it… after sitting through FinTech NerdCon and listening to the Nubank co-founder and Chime present. My verdict was skeptical: growth is not profitability, the US addressable market is structurally unattractive, and the liabilities of every neobank combined barely register on JPMorgan’s balance sheet.

I was right about some of it. I was wrong about enough of it that this update is warranted and this time I want to ground the analysis in what sell-side analytsts are publishing, not just my own read.

The most important piece of new evidence: Josh Levin at Autonomous Research published a 21-page report in September 2025 titled “Digital Banks & Fintech: Look, mom, we’re all grown up!” His central thesis is that these companies have crossed into what he calls institutional adulthood: the shift from growth-at-all-costs to profitability, and the embrace of the regulation and compliance they once rebelled against. Combined with the FT Partners + BCG Global FinTech Report 2026 (May 2026), Wells Fargo Equity Research’s Probing the Privates in Payments (June 2026), and Robert Wildhack’s Autonomous coverage of consumer fintech, we now have a rich analytical picture. This blog draws heavily on that work.

What the Data Actually Shows

The single most important chart in Josh Levin’s report plots ARPU against pre-tax Return on Assets. It shows something counterintuitive that changes how I think about this category: The companies with the lowest ARPU have the highest profitability.

Levin’s Chart 6 (using 2024 data, pre-tax to strip out different tax regimes) places the peer group as follows:

CompanyPre-tax ROAPBT MarginTotal Assets
Nubank~6%~30–35%~$50B
Revolut~5%~45–50%~$35B
Fineco~3–4%~65–70%~$41B
SoFi~0–0.5%~5–10%~$36B
Monzo~-0.5%~0–5%~$25B
Chime~-1.5%negative~$4B

Source: Josh Levin, Autonomous Research, “Digital Banks & Fintech,” Sep 2025.

Levin’s fifth takeaway captures this cleanly:

“Nubank and Revolut stand out in that they combine high pre-tax ROAs with high PBT margins. They defy the conventional wisdom that high ARPUs drive profitability — the most profitable fintechs master the art of efficiently monetizing tens of millions of customers rather than extracting maximum value from smaller customer bases.”

That is a genuine shift from the 2005-era “high-value customer” playbook I grew up with in banking. Nubank and Revolut have proven you can build a profitable bank by monetizing tens of millions of low-ARPU customers efficiently — provided the cost structure supports it. The second observation worth flagging: geography matters. Levin notes:

“Companies operating primarily or totally outside the US demonstrate better profitability than do companies operating primarily or exclusively in the US.”

Non-US companies (Nubank, Revolut, Fineco) cluster in the upper right of the ROA chart. US-primary companies (Chime, SoFi) cluster in the lower left. That is not a coincidence, and I’ll come back to it.

Four Playbooks, Not One

My 2025 piece treated challenger banks as a category. Levin explicitly rejects that framing:

“Fintechs going after the banking value chain are more dissimilar than they are similar when it comes to business model, marketing positioning and monetization strategies.”

The result is four genuinely different strategic playbooks.

Revolut: The Global Financial Super-App

Revolut has the most aggressive international scaling story in financial services. At year-end 2025 it had 68.3 million retail customers (up 16 million in 2025 alone), 767,000 business customers, and £4.5 billion in revenue growing 46% year-over-year with payment volumes of £1.3 trillion (up 65%). Its media-reported valuation moved from $75 billion in November 2025 to $115 billion by June 2026. (Wells Fargo Equity Research, Probing the Privates in Payments, June 2026.)

In March 2026 Revolut submitted its US national bank charter application to the OCC and FDIC. It received its UK banking license on 11 March 2026, and launched full banking operations in Mexico. It committed £10 billion of investment for international growth 2025–2030.

The strategic pivot is captured in CEO Nik Storonsky’s own words, cited by Levin:

“For a long time I wanted to be as less regulated as possible, it was completely the wrong decision.”

That is the sound of institutional adulthood. Revolut is transitioning from a fee-and-FX play into a full deposit-taking bank capable of running a lending book. Its retail lending is small today but expanding fast with the mechanics of NIM generation are being built out country by country.

Monzo: The Primary Relationship Hub

Monzo has done something every bank wants and few achieve: it has become the main account for its customers. Wells Fargo’s June 2026 report shows Monzo delivered £1.7 billion in revenue (+42% YoY), £73 billion in card spend (+32%), and 15.2 million customers, up from 12.2 million a year earlier. Three consecutive profitable years.

This is the Egg model I wrote about at Citi — build genuine product and service value, become the primary relationship, monetize from there. Monzo is executing it better than most legacy banks. Note: TS Anil was a Citi colleague of mine running GCG Retail across Asia during my time. He is certainly one of the best retail bank CEOs on the planet.

But there is a critical new data point that changes the US narrative. On 31 March 2026, Monzo announced it would cease US operations, pivoting back to UK and European growth. If the best-executed primary-account challenger bank in the world walked away from the US market, that tells us something important about the barrier height.

Nubank: The LatAm Credit Powerhouse

Nubank is the clearest proof of a new model that works at scale. 105 million+ customers across Brazil, Mexico, and Colombia. A 33% ROE that most US regional banks would envy. Stock returns since its 2021 IPO: +551% versus S&P 500 +118% (Levin-Sep25).

The engine is elegant: near-zero customer acquisition cost via digital accounts for the underbanked, then conversion into high-margin proprietary credit products at Latin America’s historically elevated interest rates. $41.9 billion in consumer deposits funding a $32.7 billion credit card and personal loan portfolio.

The FT Partners (Craig Mauer) + BCG report puts an important number on the structural tailwind:

Since Nubank launched in 2014, the unbanked population in Brazil has declined from ~30% to 10%.

That reduction was not an accident — it was a policy priority, catalyzed by Nubank and by Brazil’s PIX instant payment rail, which the BIS reports “had signed up 67% of adults a little over a year after launch.” Nubank rode a wave of financial inclusion that the incumbents had left uncovered.

Chime: The US Mainstream Liquidity Platform

Chime is the most misunderstood of the four. It is not a bank. It operates through sponsor banks (The Bancorp and Stride Bank) that hold its deposits. Its revenue is roughly 75% interchange (Levin-Sep25) — a structural exposure to interchange rule changes that Nubank and Revolut do not share to the same degree.

The pivot underway is real. Chime has built a proprietary consumer liquidity stack: SpotMe (overdraft advance secured against direct deposit), MyPay (paycheck advance launched late 2024), and Instant Loans (small-dollar, not secured against direct deposits — the nascent piece). Platform-related revenue reached roughly 33% of total by 3Q25.

The concern Autonomous Research is raising loudly is that Chime’s borrower base is precisely the segment now showing stress. Robert Wildhack’s October 2025 note titled “Schrödinger’s Consumer” argues the US consumer is bifurcating:

“The economy is separating into one of haves, and have nots. On the latter, the effect seems most acute among subprime or lower end consumers.”

Wildhack cut his Chime 2025 EPS estimate from -$2.37 to -$4.40 and rates the stock Underperform. His summary of Chime’s positioning is worth quoting:

“Chime sits in the crosshairs if stress on the lower-end consumer is, in fact, emerging.”

That is a very different picture from the “Chime as US mainstream success story” narrative dominant in 2024.

Where I Was Wrong in 2025

My 2025 argument had three legs. Sell-side research has invalidated one, refined another, and confirmed the third:

1. The profitability trajectory. I framed profitability as the open question. It is no longer open — at least for Nubank and Revolut. Levin’s data is unambiguous. Monzo has three consecutive profitable years. Chime is EBITDA-positive though GAAP profitability remains elusive. My “fewer than 5% of neobanks break even” framing was accurate for the category overall but misleading for the leaders.

2. The bottom 40% is not universally unprofitable. This is the correction I most need to make. I argued last year that neobanks were absorbing the bottom four deciles of retail banking because incumbents had (correctly) determined those customers were structurally unprofitable. Nubank has disproven that at scale. But this deserves the sell-side’s own caveat, because the more important question is what other markets will this work in?

The FT Partners + BCG report identifies four structural preconditions that enabled neobank success outside the US:

  • Legacy players that underinvested in digital — leaving obvious gaps
  • Large financially underserved populations — providing low-CAC viral growth
  • Clear pain points (FX fees, no credit access, high incumbent fees)
  • Structurally lower cost-to-serve through digital-only models

Bain Capital’s Matt Harris, cited in the same report, put the implication for US expansion bluntly:

“Whether a historically successful fintech can succeed in new markets depends on two things — first, the extent to which they find comparable market structures in other countries. Second, what competitive advantages can they port over from their existing codebase, regulatory status, team, brand, etc.? Neither would suggest the US is an easy market for most global competitors to enter.”

The FT Partners + BCG conclusion is similarly direct:

“The US is a different challenge on nearly all of these dimensions: It is already crowded with trusted incumbents and scaled domestic fintechs, digital acquisition costs are high, the regulatory environment is fragmented, and the population is highly banked.”

Monzo’s US exit is the empirical proof point. The best-executed primary-account challenger walked away.

3. The US banking market is structurally the hardest market to penetrate (CONFIRMED). Levin’s ROA chart shows US-primary companies clustering in the bottom-left quadrant. FT Partners + BCG confirms US unbanked rates below 4%. Wildhack’s coverage shows Chime (the most successful US-native challenger) facing credit-cycle exposure that Nubank does not share.

What I got wrong in 2025 was assuming that structural difficulty meant nothing was happening. Something is happening: it’s just not the deposit-replacement threat I was framing. It’s a slower, product-by-product incursion by well-capitalized global players, backed by an emerging regulatory shift.

The Charter Wave: A Structural Shift

This is the piece of new data that most changes my view. According to FT Partners + BCG (Exhibit 16): Federal bank charter and depository institution applications surged from 6 in 2024 to 34 in 2025 — a 5.7x increase. An additional 15 applications were filed in Q1 2026. Named 2025 applicants include Revolut, Nubank, Coinbase, and Ripple. Of the 49 applications filed in 2025–Q1 2026, 18 were digital-asset related.

FT Partners + BCG summarize the regulatory tone shift plainly:

“In the US, bank charter and depository institution applications are rising and approval pathways are becoming shorter and more navigable.”

The strategic logic for pursuing a charter is compelling: lower funding costs, no sponsor-bank economics sharing, product speed without partner sign-off, and end-to-end ownership of the customer relationship. Federal charter access also brings Fedwire access, which is a genuine operational unlock. But the trade-off is real, and worth quoting in full because I don’t think it’s appreciated enough:

“Fintechs that move closer to bank status will increasingly be expected to operate to bank standards, with tighter requirements around governance, compliance, risk management, capital, and supervision. The next phase is not one in which fintechs simply gain the advantages of being banks. It is one in which they must increasingly accept the obligations of being banks as well.” — FT Partners + BCG

This matters especially for Chime. Its ~75% interchange dependency has always been protected by its status as a sub-$10B sponsor-bank fintech — which preserves the Durbin debit interchange exemption of ~125bps. As soon as Chime crosses that threshold or obtains a charter, the Durbin dynamic I described last year bites hard. That’s the reason Chime’s charter question — pursued or not — is the most consequential US fintech strategic decision of 2026.

There is also the other edge of this sword: lower barriers for challengers are lower barriers for all challengers. Every new charter is a new competitor. The moat Chime built as a first-mover sponsor-bank fintech narrows when any well-funded fintech can now replicate the structure with a charter of its own. This is the same dynamic I flagged in Walmart – Banking and FinTech.

The Interchange and Sponsor-Bank Fragility

Two risks the sell-side is flagging that deserve more attention in this category discussion:

Interchange dependency. Levin flags interchange revenue as facing “continuous potential for regulatory, competitive and card network rule changes.” Chime is the most exposed at ~75% of revenue, but Revolut and Nubank both have meaningful interchange revenue too. A US Durbin-style debit interchange cap in the UK or EU is not on the near-term horizon, but it is a tail risk that would ripple through the entire category.

Sponsor-bank exposure. Levin cites a concrete recent example: J.P. Morgan’s decision to start charging for API calls. The sponsor-bank relationship — long treated as a utility — is becoming commercial. For Chime specifically, its dependency on Bancorp Bank and Stride Bank as sponsor banks means any repricing, regulatory pressure, or exit by those sponsors is potentially existential. This is exactly the risk that the charter application trend is trying to address, but resolution is years away.

The US Competitive Landscape: Product-by-Product

My 2025 argument that US banks are not losing ground was based on deposit comparisons. That framing remains directionally valid — the combined deposits of all US-focused neobanks still don’t move the needle on a JPMorgan balance sheet, and the tokenized deposit initiatives I’ve written about show incumbents investing on a scale challengers cannot match.

But the more relevant frame is product-by-product:

  • Debit and everyday spending: Chime and others have captured meaningful share among their target demographics. The question is whether that segment was ever profitable for incumbents anyway.
  • Credit cards: Still the golden goose, still dominated by incumbents. Nubank’s credit model works in LatAm but the US credit card market is the most competitive and sophisticated in the world.
  • Mortgages and lending: Monzo’s Habito acquisition signals intent; Monzo’s US exit signals reality. Early days at best.
  • Cross-border and FX: Revolut is genuinely winning here. Traditional banks charge egregious FX fees and have done little to compete.
  • Wealth and investments: Levin identifies “trading and investments” as the fastest-growing fintech segment globally (+38% in 2025 per FT Partners + BCG). This is where the primary relationship war will be fought over the next five years.
  • Sub-prime lending: This is where the sell-side is most cautious. Wildhack’s coverage of SoFi and Upstart shows Fitch increasing default assumptions on SoFi’s SCLP 2025-4 issue to 8.16% (just above SoFi’s own 8% assumption), and Upstart’s origination growth of +140% year-over-year raising sustainability concerns. Chime’s Instant Loans product — unsecured, small-dollar, targeted at the segment most exposed to macro stress — is the specific product to watch.

What to Watch Over the Next 12–18 Months

The sell-side reports collectively point to five decisions and data releases that will determine the next chapter:

  1. Revolut US charter decision (OCC/FDIC). Submitted March 2026. This is a multi-year process. Approval unlocks the US NIM model Revolut has built in Europe.
  2. Chime IPO trajectory and charter question. Chime IPO’d in 2025 but stock has underperformed. Wildhack is Underperform with a $17 target (down from $25). The charter decision is the next major strategic move.
  3. Nubank’s credit model outside LatAm. Can the high-margin credit playbook translate to markets where interest rates are capped, banking penetration is already high, and macro conditions are less tolerant of sub-prime concentration? This is the single most important test for the category. If it works, the neobank thesis becomes globally applicable. If it doesn’t, Nubank remains an extraordinary LatAm story rather than a category template.
  4. US consumer credit cycle for the “have-nots.” Wildhack’s “Schrödinger’s Consumer” thesis says the lower-end consumer is under increasing stress. If this becomes a hard credit cycle, Chime and other sub-prime-adjacent fintechs will face significant loss recognition. If macro conditions stabilize, the category grows into its unit economics.
  5. Incumbent response. The top four US banks maintain annual technology budgets totaling around $50 billion — higher than the total aggregate private FinTech fundraising in 2023. Chase, BofA, and Wells have been quietly improving their digital experiences. The gap is narrowing, and their tokenized-deposit and stablecoin initiatives suggest they are prepared to compete on the next-generation rails, not just defend the current ones.

The Revised Verdict

Eight months ago I questioned whether neobanks could cross the profitability threshold. They have crossed it — clearly for Nubank, Revolut, and Monzo; imminently for Chime on adjusted EBITDA, less clearly on GAAP. The companies that were growing at the expense of unit economics have found their unit economics.

What I still believe: the US banking market is structurally the hardest in the world for a challenger to penetrate at scale. Monzo’s US exit is the empirical proof. The credit card moat, the regulatory complexity, the incumbent tech investment, the Durbin dynamic, and the US consumer credit cycle bifurcation all remain real constraints. The combined deposits of all US-focused neobanks still don’t move the needle on a JPMorgan balance sheet.

What I now believe: the profitability question was the wrong question. The right question is whether these companies are building durable, multi-product financial relationships that compound over time — and the sell-side data says Monzo is already doing it in the UK, Nubank is already doing it in LatAm, and Revolut is building the platform to do it globally.

Josh Levin’s warning at the close of his report is the right note to end on:

“Success should not be measured primarily by customer growth. Success should instead be measured by profitability and long-term viability metrics (CLV, cross-sell ratio, etc.).”

I was right that growth is not profitability. They proved the profitability. Now we find out whether US expansion is the next chapter — or the hardest test yet. My money says the charter wave, the Chime IPO trajectory, and the consumer credit cycle over the next 18 months will tell us which.

Sources & Further Reading

Research reports cited (all subscription/institutional access)

  • Josh Levin, CFA & Vineet Surana, CFA. “Digital Banks & Fintech: Look, mom, we’re all grown up!” Autonomous Research. 13 September 2025.
  • “Global FinTech Report 2026: From Recovery to Resurgence.” FT Partners + Boston Consulting Group. May 2026.
  • Jason Kupferberg et al. “Probing the Privates in Payments.” Wells Fargo Equity Research. 9 June 2026.
  • Robert Wildhack, CFA & Trevor Adams. “Consumer Fintech: Schrödinger’s Consumer (Pt. 2) — 3Q25 Preview.” Autonomous Research. 21 October 2025.
  • Kenneth Suchoski, CFA et al. “US Payments & FinTech: Rising From the SaaSpocalypse.” Autonomous Research. 13 February 2026.

Prior blog posts referenced

Tom Noyes has over 25 years of experience in banking and payments, having led digital and payment services at Citi and Wachovia. He writes at blog.starpointllp.com.

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