Thriving deposits strain existing suppliers

In the dynamic world of finance, neobanks in Germany are making a significant impact, offering a fresh approach to banking services. One of the latest developments in this space is Deutsche Bank's launch of a revamped Banking App, designed to cater to small transactions.

Neobanks, known for their digital approach, have a significant cost advantage, allowing them to offer low fees and attractive interest rates. This has been a key factor in their success, particularly among younger age groups. According to recent statistics, 59.1% of those under 29 and 58.1% of those under 49 use neobrokers. Even among those over 65, neobrokers are represented at 10.3%.

Among those with securities accounts, 43% also use a neobroker. This high adoption rate is a testament to the user-friendly nature of neobroker apps, considered unbeatable in terms of usability.

However, the landscape of neobanks may undergo a shift due to the ban on "Payment for Order Flow" (PFOF), set to take effect in summer 2026. Neobanks like Trade Republic, which currently rely heavily on PFOF as a key revenue stream, will be financially impacted. Their main challenge will be losing this source of income, forcing them to consider options such as increasing fees—potentially reducing their competitive advantage—or attempting to act as their own market makers, which could raise regulatory concerns and conflicts of interest.

This shift may benefit traditional banks and brokers who could regain competitive advantages if they adapt successfully to the new regulatory environment. In fact, savings banks are planning to launch a new trading app this year, aiming to capitalise on these changes.

Neobanks have been successful in handling regulatory requirements for account and deposit opening more effectively than traditional banks. With the acquisition of a full bank license, neobanks can expand their offer to include a checking account and a debit card. Streamlining account opening is also important for neobanks, making the process straightforward and efficient.

Interest on sight deposits offered by neobanks is at the level of the ECB rate, providing competitive returns for customers. Until now, neobrokers have been financing themselves partly from rebates received from trading platforms. This adaptability and resilience demonstrate the resilience of neobanks in the face of challenges.

As the ban on PFOF approaches, neobrokers, without their most important source of income, may face significant challenges. The key for neobanks to remain competitive in price is to pass on some of the previous margins to customers. By doing so, they can maintain their competitive edge and continue to attract customers in the ever-evolving German financial market.