Everything is changing and modernizing in the world. What seemed convenient and comfortable yesterday may cause discontent and inconvenience today. In addition, the coronavirus pandemic has forced humanity to change its views on global trends. Innovative technologies are penetrating all areas of our lives, including the financial sector.
Soon, all traditional banks will be replaced by so-called new “banks” – neobanks. A significant proportion of people in the world have never heard of the neobank meaning, although some of them may have been using online banking for quite some time and are their customers. So what is a neobank? Have they challenged the traditional banks we are used to?
Neobanks Unpacked: A Simple Definition
Neobank is a fintech company that provides financial services only in digital format: via mobile app and website. Simply put, it is a place that exists entirely online, with a website and mobile app as its only “branches”. It usually does not have physical front offices. Almost all interaction with consumers takes place remotely.
Due to advanced technology and minimization of infrastructure costs, the advantages of neo banks include low or zero fees, high interest rates, responsiveness, and flexibility of customer service and support. It is hoped that the information in this section has been able to answer the question of what is a neobank.
How Neobanks Operate?
Neobanks provide virtually the similar services as traditional banks: accounts and transactions, loans, wealth management, investments, deposits, etc. In addition, most also use modern formats: crowdfunding platforms, financial robo-advisors, and cryptocurrencies.
The range of services and scope of activities of a typical neobank in individual countries is determined by the level of their economic and technological development, existing legal regulations, and the maturity of the banking system. Since neobanks operate only online, they significantly reduce the costs of employees, equipment, office space, etc.
Due to this approach, typical online banking can offer lower service fees than traditional banks, making it very attractive and competitive for many customers. Each client can, more often than not, set up a personal or business account for their company. It’s convenient and allows you to handle the financial part virtually.
From Your Smartphone to the Digital Universe: How Neobanks Provide Easy Access
There are many people in the world who do not have access to traditional banks services. For example, in the U.S. alone, there are about 7.1 million such people in 2022, representing 5.4% of the population. Neobank can provide financial services to such categories of people through convenient mobile and web applications, which provides easier access to banking services.
No Physical Location, No Problem: Lower Fees and Competitive Rates Explained
The advantage of a neobank is to minimize costs, thus increasing the speed of service, applying low tariffs, and using a personal approach to clients. Most such neobanking platforms are able to serve customers for minimal or no fees because they have other sources of income, such as interchange fees. Find the option that suits you best from the neobank list and register now.
The Upside of Neobanks
Nevertheless, neo banking has changed the industry. Thanks to this type of financial institution, mobile online banking has begun to develop. Also, the range of digital banking services has expanded, and competitors have begun to pay more attention to the UX and design of their applications, the expert notes.
Among other advantages of a neobank, you also need to take into account its low cost. Virtual financial institution products are inexpensive and may not require a monthly service fee at all. That’s what many customers are looking for.
Green Signals: Advantages of Going Neo
Here are some other advantages of neobanks:
- It’s convenient. The days when we went to the bank to transfer money or apply for an overdraft are long gone. You can do all this from your phone, so you don’t even need to get off the couch to sort through your finances and choose the most efficient transaction.
- You can get smaller loans at better rates at a neobank. Small loans for international businesses are usually hard to find, as large banks focus on larger loans and are less interested in financing small businesses. Neobanking is changing this situation for the better.
- You can make your business move faster. Non-banks use new technologies to assess creditworthiness and streamline processes, so loans and any complex financial transactions are approved much faster and more efficiently.
- It’s more ethical. If you use a smaller non-bank rather than a larger “agency” bank, your money is less likely to be invested in things with questionable public benefit (such as big pharma, tobacco, or arms dealing). You will always be able to verify this with your neobank.
The Flipside of the Coin: Understanding the Cons of Neobanks
Many people expected online banking to revolutionize financial services. But the breakthrough didn’t happen. The big banks maintained and even strengthened their positions, while the neobank had to constantly invent new business models to make a profit.
Flexible policies help neobanks quickly increase the number of users, but at the same time the risk of the loan portfolio increases. The requirements for borrowers are not as high as those of conventional banks, so the customer base is less reliable. If delinquencies and defaults on loans become much higher, the neo bank will lose a huge share of profits.
Limited Customer Service: Do The Benefits Still Outweigh The Drawbacks?
While traditional banks offer the opportunity to visit local branches and talk to account managers, you can’t come to a neobank. In this case, the customer can expect to get help only through a mobile app or a phone call. Operators may not pick up the phone because they are overloaded. This has its disadvantages. But, more often than not, support specialists will call you back even if you couldn’t get through in time.
Navigating the Restrictions: Fewer Account Services and Unproven History
There is a perception that a standard neobank provides fewer services than a classic financial institution. It depends on the online platform you choose to get the service. Most often, such platforms work with a business account, the ability to service legal entities. At the same time, the companies do not offer much help to individuals. The list of offerings is small and narrowly focused.
Battle of the Banks: Neobanks vs. Traditional Online Banks
For decades, banks have been a single “window” for their customers to obtain a variety of financial products and services. However, artificial intelligence, big data, and robot advisors are challenging traditional banking chains. We are talking about the emergence of new players – fintech companies. Such companies operate exclusively in digital format and do not have branches.
They don’t have the costs that traditional banking institutions have, for example, and therefore have lower service fees, favorable interest rates, and provide many incentives for their customers. If compare these two options of banking organizations, you can find a lot in common. Neobank, like a traditional bank, has introduced online banking a long time ago. This system allows you to manage your finances in real-time virtually.
The Monetary Machine: How Do Neobanks Make a Profit?
Typically, neobanks make a significant portion of their profits from interchange fees that go to the company when a customer makes a purchase with a neobank payment. It works as follows: the customer pays for something with a card, the merchant pays a transaction fee to the Visa payment system, and 1.5% of it goes to the service provider – the neobank.
You can also profit from interest on loans, account maintenance, paid online banking services, premium subscriptions, integration of third-party services into your mobile app, etc. In addition, some neobanks profit from ATM fees.
Case Studies: List of best Neobanks
After reading the previous information, you may be interested in a fintech list that will give you a reference point and variants, for getting financial services online. Among the many interesting and modern options, there are always several virtual platforms to choose from. So which platform can be considered the best suitable neobank for you? Let’s take a look together at the neobank examples for today.
Paysaxas
PaySaxas is a young company whose sole purpose is to make digital payments more manageable for small and medium-sized businesses. Their deep expertise and understanding of the FinTech market allow them to provide an outstanding range of products and services to meet the needs of the clients.
They include multi-currency digital wallets, virtual business accounts, worldwide payment solutions, and currency exchange. Many experts say the company could be one of the top neobanks in the future, and a competitor to traditional banks.
Statrys
Statrys is one of the most popular payment systems in Hong Kong. This neobank allows customers to open an account without queuing, hidden fees, charges, and unnecessary hassle. Statrys offers:
- account management in 11 currencies;
- foreign currency spots and forwards;
- IBAN in pounds sterling and euros.
The online platform uses advanced technologies to encrypt data, manage various security and privacy permissions, and prevent accidental errors. You can find the current banking among popular online bank examples.
Airwallex
This is another example of neobank. Airwallex is a fully licensed and regulated payment system. A business multi-currency account in the Airwallex payment system can be opened by both EU-resident and non-resident companies. The main aspect of deciding in favor of a potential client is the business activity and legal form of the company.
The company has been able to develop and implement an excellent online banking format, as noted by customers. The option of cooperation with this payment system will be a good alternative to traditional banks. One more positive thing is that cards issued by Airwallex are multi-currency and can be used for transactions in any currency supported by Visa, provided there is sufficient balance in the multi-currency account to cover the transaction.
Chime
Chime gained popularity by offering free checking accounts with no overdraft fees and cash “goodies” to users. Today, Chime is the largest neobank in the United States. The company has adopted advanced tools and offerings from traditional banking. Chime offers free financial services through a mobile app to make banking simple, transparent, and convenient for consumers.
Its features include current online accounts known as spending accounts, savings accounts, direct deposit early payroll, and free overdrafts up to $200 with SpotMe. It also offers a Credit Builder card that can help users improve their credit score.
Varo Bank
Varo Bank is an FDIC-insured, neobank that provides services online or via mobile app, with zero physical branches. Varo has limited account options, but the current options boast savings accounts with competitive APYs with zero fees or minimum balances.
Current
Current is the neobank for modern life. It is a mobile bank and Visa debit card that gets you paid faster with no overdraft fees, no minimum balance and no hidden fees. At Current, they believe their members should spend their hard-earned money on the things that matter most to them, and not on unnecessary fees and requirements. They deliver your paychecks up to two days faster than traditional banking institutions when you sign up for direct deposit because there are plenty of things in life worth waiting for. The Current doesn’t think your money should be one of them.
The Fintech Factor: The Link between Neobanking and Fintech
Modern technology is improving all areas of business, including online banking. Again, neobank is a fairly new concept in the fintech industry, but it is rapidly gaining popularity. More and more finance-related companies are investing in the development of such platforms, and competition is growing rapidly.
Neobanks and fintech startups have already carved out a niche in the global financial system by influencing traditional banks and financial institutions. In simple terms, the fintech industry comprises several sectors, including neo-banking, payments, insurance, investments, and wealth tech. The latter encompasses various tools for retirement planning, trading, crypto, analytics, and investing.
The Business Perspective: Neobanking for Enterprises
Businesses today are increasingly shifting from traditional banks to neobanking. Nothing to be surprised about here. Any neobank today is a modern approach to financial services. You can even start with the fact that all the necessary tools for monetary transactions are found in online banking. With a few clicks, the customer can complete the necessary transactions.
Business Use Cases for Neobanks
Every popular neobank today offers both an individual account and a corporate one. Moreover, most of them can open an account only for legal entities. This is because such clients are prioritized and more monetarily profitable. Also, such structures act according to the letter of the law, as they need to report on almost every step.
Neobanking offers user-friendly interfaces for business transactions, the ability to open and obtain credit cards for corporate expenses, and options for investments and deposits. Corporate clients have the chance to scale their business and rely entirely on virtual platforms.
To Neo or Not to Neo: Evaluating if You Should Switch to a Neobank
The new format for working and interacting with systems can be alarming. The same can be said for neobanking. This is a new trend that has not yet moved into mainstream use. You can always find the pros and cons of neobanks. Let’s look at all sides of the typical neobank together.
Pros and Cons: Weighing Up Your Options
| Advantages | Disadvantages |
| minimum neobanking document management costs, all documentation is maintained online; | If there is a problem on the server, account, and document processing may stop for an indefinite period of time until the problem is resolved; and until the problem is fixed; |
| maintaining and managing account transactions at a convenient time, in a convenient place from any digital media with online banking; | mistrust of legal entities, individuals, and SMEs in banks in general and non-banks in particular; and in particular; |
| neobanks save the client from waiting in line at the cash desk or for assistance from a specialist; | The issue of security always remains open. |
| neobank guarantees fast and easy control over the account status online, receiving consultations from bank specialists at any convenient time, wherever you are; | Neobanks are not regulated in the same way as traditional banks. What’s more, refunds are not always guaranteed. |
Parting Thoughts: Making Your Decision – Stay Traditional or Go Neo?
The decision is always left to the individual. Today, the world offers various options. They are modern and keep up with the times. The emergence of neobanks pushed traditional financial organizations to develop and introduce modern technologies. This already creates excellent competition, and clients benefit from it.
If you look at the neobank list above, you can see that virtual platforms today offer everything that both individuals and entrepreneurs need. The transition to a neobank requires not just replacing actual branches of traditional banks with an online platform, but also ensuring a high level of customer confidence in such banks.
It is also worth paying attention to improving the financial literacy of the population, establishing smooth operation of technological equipment, and quality individual approach to each client.
Conclusion: The Road Ahead for Neobanking
Reviews of neobanks confirm that the endeavor proved to be quite viable. The rejection of conventional branches and the transfer of all operations (including account opening) to online banking has made it possible to offer clients extremely favorable service conditions and maximum comfort for customers. Many people still wonder, what is a neobank?
Simply put, it is a virtual platform that exists entirely online, with a website and mobile app as its only branches. They pose serious competition to traditional banks. These days, there is a balance between the use of online banking in neobanks and its classic counterparts. But once the neobank meaning is on the lips of everyone in the world, rest assured that they will completely replace other formats of financial structures.
