Neobanks are modern alternatives to traditional banks that render financial services. According to the New York Times, chime, which is part of the new banking trend, has launched two million fee-free online checking accounts.
Usually, Neobanks do not have physical branches but can offer almost all banking services. Forbes indicates that Neobanks are combating these stereotypes in digital-first often, digital only-banking platforms. Therefore, Neobanks are transforming digital banking services for the better. It has made banking online a seamless experience with low or no-fee services.
This guide will let you understand Neobanks pros and cons besides examples of popular Neobanks.
1. What is a Neobank?
Neobanks, popularly referred to as challenger banks, are fintech financial companies offering internet financial services. They can virtually provide all banking services such as:
- Debit and credit cards
- Personal loans
- Bank accounts
In addition, they offer cheaper fees and competitive interest rates due to their lower expenses. They are also safe since they offer FDIC insurance in partnership with conventional banks.
2. Operation of Neobanks
As financial technology companies, neobanks do offer a variety of financial services. They execute their operations in conjunction with regular banks. Thus, your money is safe, just like in a traditional bank, as they are part of the Federal Deposit Insurance Corp. (FDIC).
Neobanks provide service either through a website or a mobile app. However, you can as well access customer service support through the phone.
3. Neobanks Pros and Cons
While neobanks can provide almost all digital and mobile financial services, they have their fair share of upsides and downsides. Here are a few of the advantages and disadvantages of neobanks.
Pros
- Neobanks charge lower fees as compared to traditional banks
- They provide round-the-clock service either online or via the mobile app
- The account management and sign-up are done digitally, thus eliminating the queuing which is typical with physical branches
- Your money is safe in a neobank, as is the case in the regular banks
Cons
- Customer support services are only available through phone, chat, or email.
- Neobanks are relatively new in the industry. Hence, it may lack the same track history in money management as regular banks
- Some neobanks may not match the broad range of services that regular banks provide
4. Are Neobanks the Future of Banking?
A keen look at the pros and cons of mobile banking indicates the future of banking lies in neo banking. First, neobanks offer their financial services in a fully digital way. Therefore, they do not rely on a physical network of branches instead of traditional banks.
Furthermore, neobanks are attractive to the younger generation and SMEs. The two represent the major growth area that will drive the future of neobanks. Not forgetting to adopt mobile neobank application development systems that work seamlessly to provide an array of services.
Eventually, the neobanks may become leaders in the industry in the future. Some of the reasons that may make neobanks the face of banking include:
- Reliable technical systems
- Low or zero-cost accounts
- Higher savings rates
- Customized financial services
5. The Most Popular Neobanks
Before we look at popular neobanks, you may want to know how to start a neobank. You start by acquiring a virtual bank license, and you are ready to start since it does not need physical offices. Then do the market research to understand trends in the industry. Here are some of the most popular neobanks.
Monzo
Monzo is based in the United Kingdom, one of the older challenger banks. While it is not yet available in the US, you can sign up to be included on the waitlist. Founded in 2015, Monzo has grown tremendously to reach over 4 million account holders. Monzo offers various services, including checking accounts, savings accounts, loans, overdrafts, and joint accounts.
Monzo earmarks to release the following as part of the US products:
- You can use an ATM card in over 38,000 ATMs free of charge
- No overdraft fees
- No exchange rate markup
- Zero monthly fees
- Zero minimum balance
Varo
At the moment, Varo offers a checking account and savings account. However, it will start offering a product called Varo Believe. It will allow those with low credit scores to build their credit effortlessly. Besides, Varo gives its clients an instant cash advance as high as 100 USD. The advance is payable for one month at no interest if repaid on time.
The main features of Varo include:
- Zero overdraft fees
- No minimum balance
- Zero monthly charges
- No credit check
- You can use the ATM in more than 55,000 ATMs at no cost
N26
N26 account sign-up is easy and fast. You will receive a linked card for making payments and withdrawals in just minutes. The account has tools to assist in saving and smart tools for analyzing your spending. Moreover, the N26 cards are compatible with mobile payment platforms like Google Pay and Apple pay.
Features of the N26 accounts include:
- Zero minimum balance
- No monthly charges
- No overdraft charges
- Zero foreign transaction charges
- You can use the ATM card in over 55,000 ATMs free of charge
Chime
It offers a savings account, a spending account, and the account for credit building. To save quickly, you can automatically decide to have part of your salary transferred into your savings. The N26 card is compatible with Visa ATMs. The main features of Chime accounts include:
- Zero minimum balance
- No monthly charges
- No overdraft charges
- You can use the ATM card in over 60,000 ATMs for free.
Concluding Remarks
Above are the Neobanks pros and cons. Ultimately, Neobanks can be a great alternative to conventional banks. They provide customers with flexible account services at low or no fees.
