Neobanks are taking the market for digital banking by storm. These banks operate online only and are substituting traditional banks with lower costs, better technology, and a more seamless experience. But why is there a growing momentum toward neobanks?
Let’s find out more.
What Is A Neobank?
Neobanks refer to digital-only banks with no physical branches. While everything is online, their services overlap with the services provided by traditional banks and include:
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Checking accounts
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Savings accounts
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Debit cards
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Funds transfer and payment services
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Loans and credit options
Instead of having to visit the bank in person, everything is done online using either a web-based platform or an application.
Why Are Neobanks Becoming Popular?
There are a number of reasons why neobanks have gained so much popularity over the last few years, including:
1. Lower Fees
Traditional banks have both direct and concealed fees that come under several categories, including monthly maintenance, overdraft, and ATM withdrawal fees.
Because they don’t have the expenses of physical banks, neobanks generally have lesser overhead costs, allowing them to waive many of these charges altogether, or at least charge minimal fees. Some even offer free accounts, which come with no hidden fees.
2. Faster and Easier Account Opening
Opening a traditional bank account tends to be quite the nuisance. You need to step into a bank branch, provide a lot of personal documents, and wait for approval. With neobanks, you’re on in minutes – and by just using a phone or another smart device.
3. Seamless User Experience
Neobanks are tech-oriented. They have unique, intuitive, and easy-to-operate apps with other features built-in: budgeting tools, instant payment notifications, and automated savings.
Traditional banks have not kept pace yet, but neobanks were built for the digital age right from the start.
4. Good Interest Rates
Since neobanks are not burdened by the overhead of physical locations, they can provide better rates on savings accounts or even lower interest rates on loans, thus becoming excellent alternatives for depositors and borrowers.
5. Global Access and Multi-Currency Options
Many neobanks have become a favored bank of digital nomads and frequent travelers. They offer many services like no fees on international transactions, all-in-one currency accounts as well as a competitive exchange rate.
Using a VPN can provide an extra layer of protection when banking online by encrypting data and keeping transactions anonymous for an added security measure.
6. Improved Financial Analysis and Budgeting Applications
Most neobanks contain financial management features that allow users to keep track of their spending habits, set goals for saving, and receive customized insights into their financial behaviors.
Such features use modern AI technology to give better control to users over their finances than traditional banks do.
7. No Minimum Balance Requirement
Most of the neobanks generally offer accounts with no minimum balance in place against which fees would be levied; this differentiates them from many traditional banks where customers are required to maintain a minimum balance to avoid being charged fees.
This makes it appealing to students, freelancers, and free spirits alike.
Responses of the Traditional Banking Institutions
As neobanks witness increasing levels of success, traditional banks have no choice but to pivot in response.
Many are now beginning to introduce digital-only accounts, cutting down fees and making their online banking experience more user-friendly to compete with neobanks.
Some banks have even established their digital subsidiaries to attract more tech-savvy customers who want to do everything online.
Despite this, neobanks still have an edge in speed, convenience, and cost-effectiveness.
Are Neobanks Safe?
The security of one’s money is a priority for online banking, too. Though neobanks don’t have physical branches like traditional banks, they’re known for implementing strict security measures, which include two-factor authentication (2FA), biometric login options such as fingerprint and facial recognition, and real-time fraud detection that can stop cyber criminals before they breach sensitive information.
Most neobanks also have the backing of traditional banks or financial institutions so that customers can be sure they are under financial regulations protecting customer deposits.
For instance, in the U.S., many neobanks partner with banks insured by the Federal Deposit Insurance Corporation so that customers’ funds stay protected.
Are Neobanks Right for You?
Neobanks are favored by tech-minded individuals who want everything to happen seamlessly online. However, they may be a good option for those who require:
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Account service in person;
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Depositing cash (some neobanks allow this option);
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Complex banking services, such as business loans or mortgages.
Final Thoughts
Neobanks are shaking the markets with reasonable fees, innovative technology, and convenience. Though not the total antidote to conventional banking, they are perhaps the right option for modern individuals on a fast track with their finances.
Do you want to switch from traditional banking to neobanks? If the answer is “yes,” do your due diligence, compare, and see how you can benefit from an appropriate neobank.
Get familiar with the following banking terms: