Neobanks have long trumpeted their digital agility. Since customers don't need to visit retail branches for any step of the process, they can still open new accounts if their movement is restricted. At the same time, the COVID-19 pandemic is supposedly accelerating the migration to a cashless and contactless future. Wouldn't people be inclined to step up digital banking activities during the pandemic?

To be sure, some people are. But reducing cash use in payments is different from opening a new bank account. A once-in-a-century pandemic may not be the ideal time to change one's primary bank, or even open an account with an additional bank. Many of us will stick with what we know: traditional retail banks. For the most part, incumbents retain a high level of trust among their customers. In frightening times, trust is more valuable than hipness or even ease of use.

Of course, the virus will eventually ebb, and economic growth will rebound. At that point, digital banks would almost certainly see a sharp uptick in user growth. The trouble is that even the best capitalized neobanks, such as Revolut, Monzo and N26, are not ideally positioned to endure a drawn-out recession. As the economic pain increases, they may struggle to raise the capital needed for costly operations. It will become harder to woo new users with subsidies and other perks.

Europe is currently facing its worst recession on record, with the European Commission projecting the continent's GDP to contract by 7.4% this year. “The danger of a deeper and more protracted recession is very real," Maarten Verwey, the head of the EC's economic unit, said in its recent forecast.

The situation does not look any better in the United States, the country hit hardest by the coronavirus pandemic, where Revolut launched its app in late March. It has not yet applied for a banking license in the U.S. "America, we come bearing good news in these uncertain times. Revolut, the financial super app trusted by more than 10 million people worldwide, has landed in the United States," the company said on its blog.

Revolut has long had its eye on the U.S. market. Unfortunately, its launch coincided with America going into lockdown. 20.5 million U.S. jobs were lost in April as the unemployment rate surged to 14.7%, the worst since the Great Depression and an increase of more than 10% over March.

In a May interview with The Financial Times, Revolut co-founder Nikolay Storonsky said that transaction volume is down 45%, which would likely lead to a double-digit revenue drop. Transaction fees are Revolut's largest source of revenue. Still, Storonsky expects Revolut to be profitable by year-end. Call him an optimist.

Monzo is one step ahead of Revolut in the U.S: In April, it applied to the U.S. Office of the Comptroller of the Currency for a banking license. While that is an important step, getting approved for the license could take as long as two years. Monzo entered the U.S. market in partnership with Ohio-based Sutton Bank. 

For its part, N26 raised an additional US$100 million in early May. The extension of its Series D round comes as the German neobank digs in to weather the fallout from the pandemic. Its valuation remains unchanged at US$3.5 billion.