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We Need to Talk About Niche Banking a.k.a. Affinity Banking

Sun, 20 Feb 2022

Rik Coeckelbergs Founder and CEO The Banking Scene

Banking for Good We Need to Talk About Niche Banking Nina Mohanty Bloom Money featured

When Nina Mohanty asked me why we see so many niche banks, the first reason that popped up in my head was: "because they can". As software gets cheaper and partnerships get easier, business cases require fewer customers to break even, and businesses can build more focused offerings to their clients.

As she and I discussed in the Podcast for Breaking Banks Europe earlier this year, we quickly understood that there was more. So I invited Nina for an interactive Afterwork session to gather more opinions and nuance in the debate.

Honestly, I didn't expect to learn as much as I did that day on February 17, 2022, and I'm happy to share it with you.

In my opinion, two great reasons popped up during the session why we see so many more niche banks today, and cheaper technology came only third. These two reasons were:

  • A focused sense of purpose drives new entrepreneurs into developing a USP beyond standard banking services;
  • Big incumbent banks lack an emotional identification with niche segments.

What's a niche bank? The case of Bloom Money

Considering her young age, Nina Mohanty held various strategic and partnership roles in Starling Bank, Klarna, Bud… and recently co-founded a new FinTech company, Bloom Money. Let's say she’s creating a bank-like offering. She joked, she doesn’t have the time or resources to set up a full-fledged bank and the banks are actually doing a good job with the basics.

It is a great example of a niche financial services offering.

She explained Bloom Money as: "A platform that is building for the future. In the European Union, in the next 20 years, we will see over 110 million migrants coming to Europe and living across Europe and in the UK. And so, what we are building is a platform home for them to build generational wealth in their new home."

Nina is an American with 50% Indian and 50% Taiwanese roots living in the UK. She knows what she talks about: "In financial services, we often think of immigrant migrant communities, through the lens of money transfers. And we've got tons of money transfer shops, and they're all doing wonderful things. But there is so much more to the life of someone who is in transition, who is a member of a diaspora. What we're trying to do is serve them and the specific lifestyle needs that they have."

We see many more niche banks these days: for women, for LGBTQ, for farmers, youth... Soon we cannot get around Metaverse communities either.

The main reason for building a niche bank: USPs beyond banking

We had a poll for the audience: what drives entrepreneurs most to set up niche banks? 31% stated 'a sense of purpose', and another 69% said 'developing a USP beyond standard banking'. Obviously, both answers are intertwined in a way.

Until recently, a challenger had enough to say their purpose is to bring superior digital banking services. Looking back, we now realise, and I will use the comparison of Nina here: that the challengers were often the pacers in the marathon: they set the speed but didn't win the race.

So digital banking is no longer enough, it is too general, as everyone offers digital banking these days.

Niche banks look for a more definite purpose and a USP that can make them money. Think of a bank for doctors that provides a purchasing platform for their customers on top of superior and relevant financial services, reducing their client's cost more than the fee they charge for the services offered.

Think of Bloom Money that figures out where migrants can go for a loan without a credit history. How to improve the life of a migrant dentist that needs retraining because their certificates are not acknowledged in the new country?

Think of Daylight that wants to understand and overcome the challenge of why it is so much harder to get a loan for a gay couple that wants to finance surrogacy compared to a straight couple that is going to redo their kitchen.

All of this is linked to reason number two.

Second reason: the white male banking industry lacks affinity

As Nina suggested, you'll understand what I mean by using the term affinity bank instead of niche bank.

Nina said: "It all boils down to identity, and I think niche banking very much is centred around identity and how we ourselves identify." When listening to people's stories, being a white male myself, I often realise how little I can adequately identify with people that think different.

Please think of "people that think different" in the very broad sense. How much are we stuck to the idea that we think we know how others feel and think? For good reasons, incumbent banks tend to build general offerings to serve all people.

Incumbents build from the inside out. On the other hand, niche banks surround themselves with people from the community. They create services, realising their customer segment is limited to precisely that community.

A woman in the audience shared: "Banks, traditional big players, even the ones that had the purpose, became a transaction business. You don't think of them as part of your life. It's like, I have to pay my bills, to get it off my to-do list, and those guys securely facilitate that. But they're not part of a community, and they don't make me feel part of the community."

We don't need to look far for a few great examples that make the obvious a lot less obvious. Banking is a white male industry. A recent study in The Netherlands by ABN AMRO has shown that women feel underserved by their banks.

The top-3 recommendations of that study summarise precisely the discussion we had:

  • Make it easier for people to approach a bank and set up personal contact
  • Make communication about banking and finances easier to understand and more inclusive
  • Tailor and develop products and services to meet the needs of women and men

Today these are real-life communities, but imagine the new world opening up with Web 3.0? We touched upon this the week before, but I don't think anyone can predict the real impact once Web 3.0 outgrows its current state.

Let's be clear: affinity banking in the Metaverse is NOT about having a branch in the Metaverse.

Minor reason: FinTech and RegTech

Technology and compliance remain heavy duties. We all talk about the democratisation of banking through BaaS, SaaS, Cloud, etc. Still, in the end, banking remains a heavily regulated industry that requires ownership, a team and a lot of money.

Nina: "At the end of the day, I still need an MLRO, I still need a compliance officer and those things aren't fully digitised just yet, and there's not a machine to do that for me."

In the US, the concept of sponsor banks are better developed, explained Nina. Affinity or niche banks can focus on product development, UX and support, and the sponsor bank takes care of the rest.

In that sense, Europe has some catching up to do.


If I had to summarise this 1300-word blog into 1 word it would be: community. Niche banks serve a community instead of society. That is the big difference between niche banking, or affinity banks, and incumbents.

Mind you: many incumbent banks once started as an affinity bank. Remember our session of 95-year-old vdk bank, where Leen Van den Neste, their Chairwoman, said: “We wanted the workers to save a little bit of money for their household. Women were not working those days, it was a man providing for their households. We wanted to push them to save some money."

Niche banking isn’t new, but clearly, we see a rise in the number of new niche banks, and I don’t believe that will change any time soon.

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