What is a Neobank? How Are They Different From Regular Banks?


The banking industry hasn’t seen a revolution this pronounced since ATMs first appeared on the scene. Just as those “money machines” transformed how people deposited and withdrew funds from their accounts, the rise of neobanks is disrupting the world of finance in different ways.

These smaller, digital-only banks are increasing competition in the financial industry, offering customers reduced fees, early access to paychecks and more. They’re growing fast, too. Last year, there were an estimated 146 million global users of neobanks. By 2026, that number is expected to hit 350 million.

Despite that, many people aren’t familiar with neobanks and the differences between them and traditional financial institutions. We’ve got the answers for you.

What is a neobank?

Neobanks are financial technology (or fintech) companies that offer many of the services you typically associate with a bank, such as checking and savings accounts. What you won’t find is a physical location. By being a digital-only operation, they can sometimes offer services like higher interest rates with the cost savings.

Neobanks first began to pop up in the late 2000s as the Great Recession began to taper off. They’ve grown rapidly since then.

Is my money insured at a neobank?

Generally, yes. Most neobanks are insured by the FDIC, meaning any deposits of up to $250,000 are protected, just as they would be at a traditional bank. However, some neobanks also offer stocks or cryptocurrency investment options, which are not insured. And since not every neobank is chartered or partnered with a traditional bank (which puts it under that institution’s insurance umbrella), it’s definitely worth asking before opening an account.

What advantages does a neobank offer?

Since there’s no branch to visit, you can conduct business whenever you’d like with a neobank. (Of course, in fairness, you can generally do that with most traditional banks as well, via their Web portals or apps.) Opening an account is a much quicker procedure as well, since neobanks typically don’t check your banking history. And the user experience is smoother, since they’re built as a digital-first business.

The big draw for most customers, though, is in savings. There’s often no service charge at all (and when there is one for a low balance, it’s typically less than what a traditional bank would charge). They also often offer higher interest rates on checking and savings accounts than a traditional financial institution.

What are the potential downsides of neobanks?

If you need to contact customer support about a problem with your account, it’s going to be a lot harder for neobank customers. Those consultations are usually done via social media, online chat or on the phone. Neobanks also may not have all of the banking services you’ve come to expect from a traditional bank (i.e. wire transfers or the ability to accept cash deposits).

But what most critics will point to is neobanks’ lack of experience and the odds of the fintech failing. Assuming you’re under $250,000, your money will likely be safe if that happens, but you’ll still experience a headache or two getting it back.

Are all online banks neobanks?

They’re not, though you can hardly be blamed for any confusion.

Neobanks are only accessible online, with no physical locations anywhere. Digital banking is a term used to underscore the online presence of any bank, including those with brick-and-mortar branches. It’s a catch-all term for everything from websites to smartphone apps.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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