‍Rethinking New Market Entry: Why a Joint Venture with the “right” Incumbent could be the Smart Play for Neobanks?

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As the McKinsey guys in their annual review of the banking sector pointed out almost a year and a half ago, the modern incumbent banks are facing a real, tangible, and meaningful banking transition, affecting three key pillars of banking as we know it: balance sheet, transactions, and distribution.

In other words:

• Off-balance sheet sources of funds (sovereign funds, alternative investment funds, retail AUM, insurance money…) fuel the economy faster than banks’ balance sheet funding.
• Transactions/payments are exploding everywhere and are no longer limited to banks.
• Neobanks dictate the new norm in speed-driven digital distribution and client acquisition.

All three segments are, to different extents, influenced by user experience (UX/CX). However, the real challenge—the “ability to serve” (which is the essence of banking as I see it)—is further shaped by speed and the capacity to scale while managing varying levels of risk appetite (especially in lending products).

Some incumbents are inherently built to transition, but many are not. A long tail of small, sub-scale banks must seriously question the long-term sustainability of their business models.

That said, it’s not all smooth sailing for neobanks either. Fast-growing digital banks with global ambitions are also hitting obstacles—perhaps less visible for now, but real nonetheless. Scaling is becoming harder.

Take Europe, for example—a market roughly 10 times the size of Latin American and African banking markets combined. It’s a highly regulated yet digitally mature landscape where players like Revolut, Monzo, and Starling have made headlines. Yet, they haven’t achieved the balance sheet scale or operational leverage expected of a now-mature disruptor. The same three pillars driving the great banking transition will affect them as well—though from a different angle.

I believe the next chapter of European digital banking will not be defined solely by pure-play neobanks or re-platformed incumbents. Instead, my (yet unproven) thesis is this: unexpected alliances—combining disruptive DNA with balance sheet muscle—could shape the future.
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The Incumbent’s Dilemma: Strength Held Back by Structure

European incumbents, especially those with a balance sheet in the EUR 30–50 billion range, sit on vast pools of:

• Trust
• Compliance infrastructure
• Solid back-office know-how
• Funding capacity

What they lack is speed.
What they crave is relevance.
What they need is a mindset re-orientation.

Years of digital transformation have brought mobile apps and better UX, but their core DNA remains:

• Risk-averse
• Waterfall-driven
• Not designed to launch new products in weeks
• Not wired to iterate based on user data
• Not set up to attract digital-native talent

Yet, they possess what many digitally native banks still want:

• Market reach
• Banking licenses
• Low-cost deposits (cheaper than Google Ads acquisition)

They thrive on a passive, higher-income, and less tech-savvy client base—and they can continue to do so. These are generational habits, requiring decades to shift, not months.

What they’re seeking:

• End-to-end digitization
• Agile product rollout
• Relevance with new generations
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The Disruptor’s Dilemma – Speed Held Back by the Structure

I’m a fan of the neobank disruptor mindset, but I come from the incumbent world. That means I’m on a learning path, eager for exponential growth.

When I try to shift my mental model and imagine myself sitting with the brainpower of leading global disruptors, I think along these lines:

We’ve proven that we can:

• Build and rapidly scale full-stack digital banking platforms.
• Operate with lean FTE models and data-driven decision-making.
• Drive 10x user growth through product-led acquisition.
• Create retail and SME-focused financial services that people actually love using.

But we also know what we don’t have:

• Embedded local regulatory credibility in Europe (yet) or strong connections within the traditional policy-making circles in Northern Africa, Eastern Europe, parts of Asia, and the GCC—markets that, while not fully distributed, are highly attractive.
• Immediate access to lower-cost funding pools.
• Full-stack capital market capabilities or the scale needed for loan warehousing.

What we’re seeking:

• Expansion of distribution
• Deeper asset classes
• Wider regulatory rails
• A full banking product stack—not just retail and underserved SMEs.

Our ambition isn’t just to launch in Europe. It’s to lead. And for that, we’re willing to partner—on the right terms, ensuring value creation for both our shareholders and those of incumbent banks.
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Can Such Joint Venture Work: The Chase UK Precedent

Chase UK is proof that an incumbent-backed digital bank can succeed.
Backed by JP Morgan's balance sheet but built with start-up speed, it has outpaced Monzo and Starling in deposit gathering in just three years. This model seems to work—at least in the retail/SME space.

But what if we flipped the script?
Instead of an incumbent bank launching a digital arm (which has a high probability of failure), imagine a digital bank launching a European player with majority control, while leveraging an incumbent as a strategic partner:

• The neobank leads GTM (go-to-market), product roadmap, tech hiring, and customer experience.
• The incumbent provides licensing, compliance, back-office infrastructure, and local funding reach.
• The JV operates as a standalone entity with its own leadership, built for speed and scale.

The JV expands beyond retail and SME, tapping into areas where neobanks still struggle due to the need for physical contact and human-touch advice:

• Wealth and asset management products
• Mortgage lending at scale
• Complex structured SME and corporate finance
• Trade finance, including highly profitable guarantee products

This approach could redefine the next wave of European digital banking.
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The Blueprint: Roles and Rules of Engagement

What a Neobank Brings (at Retail and SME Level):

• Platform-native tech stack (cloud-first, composable, API-led)
• Proven digital talent onboarding engine
• Growth marketing playbooks with 10x ROI
• Embedded finance capability and modern UI/UX DNA

What an Incumbent Brings (at All Levels):

• Regulatory license or fast-track umbrella
• Balance sheet support and capital flexibility
• Local risk & compliance expertise and back-office strength
• Long-term client trust
• Shared ambition to disrupt, not just digitize

Together, They Can Create a Category-Defining Bank:

• Nimble
• Credible
• Capital-efficient
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But What’s In It for the Incumbent?

This is not an outsourcing innovation.
This is equity in a new growth engine.

• Exposure to higher-margin digital revenue streams
• Access to modern product infrastructure
• Talent acquisition brand halo from being associated with a next-gen bank
• Optionality to roll innovations back into the core bank—without the risk of disruption

An incumbent doesn’t need to re-platform the mothership. It needs to build a faster ship alongside it.

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Final Word: Build the Third Banking Category

Profitable neobanks should not be looking to become tech vendors for incumbents (BaaS engines are a hard sell).
Maybe they shouldn’t be looking to be acquired—or to acquire—at all.

Instead, they could focus on co-creating a new category:

• A digitally-native bank with incumbent-grade muscle.

I can easily imagine this becoming the model that reshapes banking in Europe.

¹ _{McKinsey & Co: »The Global Banking Annual Review 2023; The Great Banking Transition; October 2023«}