Traditional banking has been around for hundreds of years and is still the norm to this day. However, it has not been able to keep up with the ever evolving technology and consumer preference of making things more efficient. From paperwork, ATM malfunctions, waiting times, security issues, and more, traditional banking has many problems that plagues it. Thanks to fintech, an alternative solution has been made: Neobanking.
What is a Neobank?
From the word itself, “Neo” means new. These are modern banks that are only available online and have no physical locations. They offer digital, mobile-first financial solutions for lending, payments, and other activities. Fintech companies provide tools to simplify mobile and online banking, such as software, apps, and other tools. The majority of these fintech companies focus on specific financial products, like checking and savings accounts. While many of them collaborate with these organizations to insure their financial products, they also have a tendency to be more agile and transparent than their megabank rivals 1.
How does Neobanking work?
Neobanks operate by offering financial and money management services purely online. Do note that they are far different from traditional banks that are able to offer it’s consumers with both online and offline services.. Instead, because neobanks often only provide a small number of essential digital banking services, customers typically only use them to save money and send money. On the other hand, traditional banks offer a variety of services such as loans, mortgages, credit cards, etc. By charging little to no fees for their services and giving free or low-cost instruments to preserve consumers’ financial wellbeing, such as overdraft protection, neobanks set themselves apart from traditional banks 2.
Features of Neobanking
To go more into detail, neobanking is more convenient than one may think. Working with current banking products is the key to fulfilling neo banks’ goal of streamlining the financial management process for their users in the digital banking environment. On top of the fundamental banking products and payment infrastructure offered by banking partners, they essentially develop the application layer for the products and services. Neo banks have agreements with third parties to cross-sell value-added products. This enables them to concentrate on the element of their products’ user experience. Since neobanks are more tech savvy than your normal banks, they have increased convenience. Neobanks are primarily driven by apps, thus most of their functions are accessible with just a few clicks on your phone 3.
It is also notable that all neobanks are startups. Some of them focus on specific issues that consumers may have with traditional banking and aim to make these issues nonexistent and make the experience more efficient for the end user.
The Good and The Bad
Here are some known pros and cons in regards to neobanking. Neobanks tend to have lower fees. Since they are fully digital, they don’t need to worry about the costs of physical branches. As such they boast absolute convenience as you can make transactions anywhere via their apps. On the same hand, this typically makes it easier and faster to open new accounts and do transactions. Neobanks often charge reduced costs, allowing them to provide greater interest rates on savings accounts and lower interest rates on loans.
Going more on its cons, neobanks aren’t really the same as regular banks. Meaning they don’t follow the same regulations which might pose a risk for some when something goes wrong. While being purely on apps is convenient, having no physical branches can be an issue when it comes to customer service as you won’t be able to resolve problems while having a face to face talk with a helper. Neobanks may not offer the full range of services that traditional banks do, such as mortgages, loans, or investment advice. Lastly, With increased reliance on digital channels, there may be concerns about the security of personal and financial information.
Should more people rely on Neobanks?
The idea of convenience is always tempting. In the digital age and the nature of neobanks, it’s easy to see why it’s so appealing. Despite that, neobanks may not be for everyone. While it is convenient, it’s also a pretty basic service and isn’t as in-depth as traditional banks which might not satisfy all your needs. Neobanks use technology in order to showcase and capitalize on their advantages in order to create appealing features to real in more users. They monitor cash flow and suggest appropriate instruments for their consumer’s financial activity. As such, neobanks are the go-to for people that are searching for seamless services that are affordable. Whether or not you should switch to neobanking purely relies on what your priorities are for your financial planning.