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A Guide To Neobanks

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On November 21, 2022,November 21, 2022 , In Business

What is a Neobank?

A neobank (or challenger bank) is a type of financial institution that operates exclusively online with no physical branches. They offer customers digital-only financial services that are designed to be convenient, accessible, and easy to use.

How Neobanks Work

Unlike traditional banks, most neobanks aren’t chartered, but it’s common for neobanks to partner with chartered banks.

Most neobanks offer a low or no-fee structure and early deposit access to cater to all consumers, whether strapped for cash or not. Their approach is 100% digital with intuitive mobile apps and user-friendly websites. Neobanks strive to give today’s banking customers the convenience, flexibility, and transparency they’re increasingly seeking.

5 Benefits of Neobanks

Low costs: With little operational costs, neobanks can offer lower fees and higher interest rates on checking and savings accounts, making banking more affordable.

Convenience: Customers can open an account and access neo-banking services 24/7 without needing to visit a branch; all services are digitally accessed and therefore always available.

Streamlined service: Customers gain access to more seamless, faster user onboarding and on-demand service, without having to wait to be served.

Optimised UX: As online-only services that excel at convenience and accessibility, most of these solutions have prioritised and optimised their user interface and user experience.

Customer service: Despite there being no branches, neobanks offer 24/7 customer support through digital channels, and often have dedicated phone lines as well.

How Do Neobanks Differ from Traditional Banks?

There are many ways neobanks differ from traditional banks, with the lack of physical branches being the most apparent. Rather than walking into a brick-and-mortar location to conduct financial transactions, neobank customers use an app or website to deposit a check or transfer money. (For many people, this is part of the appeal.)

Because they are run by technology companies, neobanks naturally provide a technology-forward, modern experience. Many neobank customers enjoy additional perks and benefits like low or zero fees, higher interest rates, or early access to paycheck funds.

Unlike traditional banks, neobanks aren’t chartered as banks by state and federal regulators and don’t extend credit to customers.

How Do Neobanks Differ from Online Banks?

Neobanks are often confused with online or digital banks since both institutions allow customers to set up financial accounts and manage money online. However, there are keyways these two institutions differ.

Online banks digitise the traditional online banking experience—essentially a transfer of physical banking services to the online realm. In contrast, neobanks are run by fintech companies and offer bank-like (but not true banking) services.

Check out our infographic below which takes a further look into neobanks.

A guide to Neobanks infographic
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