Neo Banks
Introduction
It’s hard to determine the precise moment when ‘Neobanks’ first appeared, but if you could go back to the mid-90s, you might just find they were the brainchild of a certain Bill Gates. The idea of Neo banks is that they are ‘digital only‘, meaning all transactions are online, and customers can use them anywhere with any device.
With the rise of cryptocurrency and digital banking, we see a new set of financial institutions emerge. These are called “Neo banks.”
Neo banks offer the same essential services provided by traditional banks plus some additional services that can be hard to find with conventional banks. These services include investments, savings options, and more.
The interesting concept of Neo Banks
It’s a form of banking that has emerged in recent years. The bank doesn’t provide mortgages or loans to customers. Instead, it provides them with help in managing their money and a range of financial products.
With all the discussion above, it has become clear that this form of banking is often used by people looking to invest or manage their money without dealing with the hassle and expense that comes with opening up a traditional bank account.
What are Neo Banks?
The term “Neobank” was coined in 2017. Neobanks are digital banks which operate through online mode but without physical locations. They offer the same services as brick-and-mortar banks but with digital interfaces.
Why Neo Banks are becoming popular?
Neobanks have high-tech features and powerful digital platforms, which make them trump the banking system. Some features that set them apart are:
How do Neobanks make money?
The business model of Neobanks typically uses a different model than incumbent banking institutions.
They make a good share of their revenue from interchange fees paid by merchants when customers make purchases using their debit cards.
As smaller organizations, Neobanks are allowed interchange percentages up to seven times higher than those available to banks with more than $10 billion in assets.
Should You Consider Switching to a Neobank from your existing Bank?
Operating as Neobanks, app-first startups offer digital banking services to people who have grown tired of high fees and low utility from traditional banks.
Neobanks usually set up an account in minutes, which is a significant departure from conventional banks’ lengthy account set-up process. This agility often means easier account set-up, faster processing times, and no fee charges.
There are many critical differences between Neobanks and incumbent banks that a customer must consider before deciding which is best for them.
- Neobanks will typically have pared-down services compared to incumbents and generally focus more on easy-to-manage areas such as checking and savings accounts. They try to avoid working on much more problematic aspects of banking, such as mortgages or loans.
- Another limitation is access to brick-and-mortar branches, which may impede in-person assistance with accounts.
Customers considering making the leap from a legacy bank to a digital-first one will want to consider factors including:
Pros & Cons of Neo Banks
Nothing in this world is perfect. The same goes for any financial institution. So, we will discuss their pros & cons:
Pros
- Convenience: User-friendly, mobile-based platforms for easy banking access.
- Low Fees: Often have fewer fees compared to traditional banks.
- Tech Integration: Innovative technology for efficient and modern banking.
- Personalized Services: Tailored services and tools catering to specific needs.
Cons
- Limited Services: Might not offer the complete range of traditional bank services.
- Security Concerns: Relatively new, potential security and stability uncertainties.
- Lack of Physical Presence: No physical branches for in-person assistance.
Conclusion
Neobanks are a new era of financial institutions that quickly gained popularity. They offer many of the same services as traditional banks but without all the fees. In addition, they often have better customer service and more innovative features. If you’re looking for a new bank, consider a neo bank.
Please read the other interesting posts:
