Traditional banking may conjure images of massive brick-and-mortar buildings, broken ATMs, and stacks of paperwork. Neobanks is a new breed of non-bank fintech [financial technology] startups that promise seamless online experiences and low- or no-fee services. Neobanks challenge these stereotypes by offering digital-first—and frequently, digital-only—banking platforms.
The Neobank experience, however, is all that great for customers. Here is a list of some of the most well-known neobanks today, their business models, and some things you should consider before switching.
Neo Bank
Neobanks are fintech companies that provide apps, software, and other technologies to simplify mobile and online banking. They’re also sometimes referred to as “challenger banks.” These fintech companies typically focus on specific financial products, such as checking and savings accounts. They often exhibit greater agility and transparency than their megabank counterparts.
These fintech companies are more frequently referred to as “neobanks” in the US. A number of fintech banking startups that appeared in the wake of the 2007–2009 financial crisis were first given the name “challenger banks” in the United Kingdom.
The term “challenger” fits well. These businesses frequently contrast with digital disruptors in other sectors. The banking industry is currently transformed by fintech, similar to how Uber and Lyft changed the transportation sector or Airbnb the hospitality sector. Some well-known neobanks in the US are gaining a ton of customers. For instance, Chime was estimated to have 12 million customers in February 2021, up from 8 million in the previous year.
According to research conducted by Paris, France-based Exton Consulting, a strategy and management consulting firm for the financial services industry, there were 256 Neo banking platforms globally as of December 2020.
How do Neo Banks operate?
Neo is short for new. These modern banks are only available online and have no physical locations. They offer digital, mobile-first financial solutions for lending, payments, and other activities.
Customers may deposit and withdraw funds through them. Debit cards, investment options, and other services are available. They offer even credit and lending services.
However, most Neo Banks lack a banking license and cannot function independently; instead, they collaborate with authorized banks to offer financial services.
Benefits of NEO Banks
1. Reduced Fees
Neobanks do not have physical branches, so they are spared the costs of infrastructure, infrastructure maintenance, rent, and other costs that eat into a traditional bank’s profits.
Customers receive these savings through higher interest rates and lower fees. Additionally, it indicates that Neo Banks have more manpower and financial resources to devote to improving the banking experience for their clients.
2. Usability
Opening an account at a conventional bank is a time-consuming and frustrating process. There are paperwork requirements and waiting periods. Some banks will even come to the customer’s home to confirm their address before requiring them to visit the physical branch.
Everything in a neobank is digital. Users can create accounts on their mobile devices while lounging on their couches at home. In just a few minutes, the charge is usable.
On-the-go use of a user’s laptop or mobile device is possible for tasks like checking a check that ordinarily requires a trip to a physical branch. This functionality has grown in importance, especially in the post-COVID era when people prefer the security and comfort of their homes.
3. Better UI
Improving the digital experience for customers was the top strategic priority for financial institutions in 2018.
Neobank apps created to enhance the online banking process. Neo-apps are easy to use, effective, and attractive. Traditional financial institutions have compelled to make digital offerings to keep up with the times.
However, because traditional brick-and-mortar banks are not digital first, the apps they develop have bugs and lags. A neobank is.
Neobanks have access to the best talent available on the market to create some of the most streamlined and slick banking experiences available in fintech.
4. Less Strict Rules
Neobanks are not true banks because they lack banking licenses and are not under RBI regulations. They have more freedom than conventional banking institutions. They can maintain low costs because they are exempt from the rules and regulations of legacy banks.
Renowned Neobanks
Neobanks are abundantly available on the market. Forbes Advisor recently broke down the pros and cons of some of the most well-known online banks. The list features various “hybrid” platforms and neobanks that provide comparable digital services but connected to established organizations.
Here are a few of the more well-known neobanks currently available.
Chime
Chime, which boasts more than 12 million users, is arguably the most well-known brand in the American neobank market. The platform eliminates many of the common fees usually associated with physical banks. Chime also offers competitive annual percentage yields, early access to direct deposit payments, credit-building opportunities, and automatic savings features (APY). Chime is not a bank; it is a provider of financial technology. The Bancorp Bank or Stride Bank, N.A., members of the FDIC, are the companies that issue debit cards and banking services.
Varo Bank
Neobank Varo Bank established in 2020. The company, which has 2 million users, became a bank in 2020 after receiving a full-service national banking charter from the Office of the Comptroller of the Currency (OCC). Similar benefits to Chime are provided, including no monthly or overdraft fees and no minimum balance requirement. To open an account, users are not subject to a credit check.
Current
Another neobank with a large user base in the United States is Current. It provides advantages like early direct deposit access, cost-free overdrafts, and cash back on debit card purchases.
International Challenger Banks
Popular challenger banks in the UK include Metro Bank, Revolut (which recently made its U.S. debut), and Starling. N26 in Germany and NuBank in Brazil are two additional competitors on the international stage.
Sum up
Neobanks were created in response to the challenges presented by the old financial services industry and the advent of the digital age. Despite a few hiccups, the trend is likely to continue for a while. That’s good news for a sector that has long needed diversification and a renewed emphasis on accessibility. If you want to create such a Neobank platform, better consult an IT Consulting Company in NYC or wherever suits your requirements. They can consult you about scope and cost of these type of solutions.