Neobanks, the digital disruptors of the fintech world, will see the number of US account holders reach 20.2 million by the end of 2021, more than double the number just two years ago, according to our inaugural Insider Intelligence forecast for digital-only banks. Neobank Chime, which was founded in 2013, is well ahead of its competitors. It will hold steady as the industry leader, but there will be a shift this year for the No. 2 spot.

Chime to drop “bank” from its promo items: The neobank reached a settlement with a California regulator that took action against it for not having a license—but the ordeal may spur more challengers to acquire banking charters as a way to build trust with customers.

Google’s update to Google Pay includes enhancements to its Google Plex bank account—as big tech companies dive into banking, it jeopardizes the value proposition of digital-only banks like Chime and Varo.

In this section, we’ll dive into the strengths, weaknesses, and long-term risks for each of the four largest neobanks in the US by account holders, as of May 2021: Chime, Current, Aspiration, and Varo. Chime. Chime is the neobank to beat. Founded in 2012, Chime boasts 13.1 million US users.

The features are being offered by neobanks like Chime and Varo, along with incumbents such as PNC and Fifth Third Bank. The bigger picture: BofA’s product reflects a growing trend by established banks, blunting what has been a competitive advantage for digital challengers. In recent months, incumbents have taken actions against the fees:.

Varo’s biggest US competitor, Chime, announced in August that it raised $750 million in a Series G funding round that spiked its valuation to $25 billion. The big takeaway: Sky-high fundraises and valuations raise expectations for neobanks. While it’s not the biggest US neobank, Varo’s national banking charter gives it an edge in its home market. Attaining this charter wasn’t easy.

Revolut’s biggest US neobank competitor, Chime, revealed in September that it turned a profit when measured by EBITDA, according to TechCrunch. Revolut broke even in the month of November 2020, but broadening its product suite to include more revenue-driving offerings can help it sustain those profits—and prove that it’s capable of monetizing its enormous client base.

ProPublica’s investigative article marks the second public relations black eye that Chime received this year. Earlier in the year, the neobank agreed to accede to the California Department of Financial Protection and Innovation’s demand that it stop marketing itself as a bank. The regulator had pursued action against Chime because it lacks a banking license.

Chime is expected to reach 20.2 million account holders by the end of 2021, and Current is forecast to more than double its user base to 8.4 million by 2025. So while this latest funding round gives Revolut the firepower necessary to introduce its product suite to new geographies, in an important market like the US, it may arrive too late to the party.

Applying for an account with Chime, the largest US neobank, for example, took us under 2 minutes—about half the time of some incumbents. Other points of friction that digital challengers bypass include diverting online applicants to a call center.

Examples of such products include early paycheck access offered by challengers like Varo and Chime, and PNC’s Low Cash Mode, which provides users with advance warning of low balances. Competitors could also capitalize on the negative publicity by emphasizing their user-friendliness, such as how their accounts don’t require minimum balances or monthly fees.

Challengers that were early comers to the feature including Varo, Chime, and Current. Early paycheck access is becoming less of a competitive differentiator as a growing list of incumbent banks is co-opting it. Huntington is the latest US incumbent bank to offer early paycheck access. Two other incumbents recently unveiled the same feature.

Neobanks like Chime, Varo, and Current have promoted their overdraft protection as a key differentiator between them and legacy banks. If incumbents also adopt more lenient overdraft policies, the challengers lose a competitive advantage. Another special feature closely associated with neobanks—early direct deposit—has also started popping up among incumbents, including Capital One and Fifth Third.

In the US, native neobanks like Chime and Varo will offer stiff competition.

Popular US challengers like Chime and Current seek to pick off disillusioned incumbent customers through enticing overdraft protection offerings—with the latter neobank likely passing up over $100 million in overdraft charges. High fees have long been the Achilles heel of large institutions like PNC, but its latest solutions could weaken one of the neobank industry’s most effective value propositions.

For context, Chime, which is the largest neobank in the US and one of the biggest globally, is estimated to reach only roughly half that number by the end of this year. Nubank CEO, David Velez, declined to confirm which countries were currently in its expansion sights—but its recent hires suggest it could be gearing up to expand significantly beyond its core market in Brazil.

Neobanks like Chime and Varo will grow by nearly 19 million US account holders between 2021 and 2025, per Insider Intelligence projections. By the end of 2025, close to 40 million US adults will hold accounts at digital-only banks. More like this:. Report: The Banking Digital Trust Report 2021. Article: Varo Bank launches cash-back rewards in strategy pivot.

Current and Chime have introduced products like an early paycheck feature that undercut prohibitive charges common at banks.

US neobanks have netted enormous funding rounds over the past two years—and the largest, Chime, was privately valued at $14.5 billion this fall.

Fellow neobank Chime, in contrast, is not licensed and recently agreed to stop calling itself a bank after a California regulator took action against it. Varo’s partnership with BlackRock underscores how it plans to achieve primary banking status with customers.

US state regulators: Chime agreed to stop referring to itself as a bank in its marketing materials, per a settlement with the California Department of Financial Protection and Innovation that was dated to March. The state regulator took legal action against Chime in 2020 because the neobank was likening itself to a bank without having a state banking license.

Potential winners include US-based challengers like SoFi, which is planning to go public by June 1; Varo, which received a national banking charter last September; and Chime, which recently closed a $485 million funding round.