While neobanks have been around since early 2010s, they have come into the forefront during the latter half of the decade. Now, there are neobanks that provide an array of banking solutions typically associated with traditional banks. Besides, some FinTech companies from other sectors such as insurance are also looking at what deposit accounts have to offer.
What are Neobanks?
Neobanks are direct banks that function only in the online world. They reach out to customers via web-based platforms and mobile applications. Neobanks do not operate physical branches. Technology-driven, it is not uncommon for neobanks to adopt artificial intelligence and machine learning capabilities to enhance the levels of service they provide.
Neobanks fall into two basic categories – ones that have their own banking licenses and others that partner with traditional financial organizations and provide their services. UK-based Monzo Bank Limited, for instance, is a neobank that is authorized by the Prudential Regulation Authority (PRA). It is regulated by the Financial Conduct Authority (FCA) and the PRA. Monese, another UK-based neobank, on the other hand, functions as a registered agent of PrePay Technologies Limited.
Other typical features of neobanks include:
- Might not be registered as financial institutions
- Provide access to large network of fee-free ATMs
- Provide intuitive money-tracking and budgeting tools
- Provide streamlined mobile banking experiences
- No overdraft fees because cards are prepaid
The corresponding table lists neobanks from different parts of the world.
|The UK||Atom Bank|
|The UK||Starling Bank|
More neobanks are going to start offering different types of financial products to their customers, with several already moving beyond bank accounts and linked prepaid cards. Neobanks, without doubt, will need to pay close attention to banking regulations before entering any new market. What will help, from a customer’s perspective, is that traditional banks will have to keep pace with the shift in technology or risk losing out on their share of the pie.