Neobanks Explained

November 24, 2020

While neobanks have been around since early 2010s, they have come into the forefront during the latter half of the decade. Now, there are neobanks that provide an array of banking solutions typically associated with traditional banks. Besides, some FinTech companies from other sectors such as insurance are also looking at what deposit accounts have to offer.

What are neobanks?

Neobanks are direct banks that function only in the online world. They reach out to customers via web-based platforms and mobile applications. Neobanks do not operate physical branches. Technology-driven, it is not uncommon for neobanks to adopt artificial intelligence and machine learning capabilities to enhance the levels of service they provide.

Neobanks fall into two basic categories – ones that have their own banking licenses and others that partner with traditional financial organizations and provide their services. UK-based Monzo Bank Limited, for instance, is a neobank that is authorized by the Prudential Regulation Authority (PRA). It is regulated by the Financial Conduct Authority (FCA) and the PRA. Monese, another UK-based neobank, on the other hand, functions as a registered agent of PrePay Technologies Limited.

Other typical features of neobanks include:

  • Might not be registered as financial institutions
  • Provide access to large network of fee-free ATMs
  • Provide intuitive money-tracking and budgeting tools
  • Provide streamlined mobile banking experiences
  • No overdraft fees because cards are prepaid


Pros of Neobanks

Turning to neobanks can come with various benefits, which include:

  • Typically inexpensive products with little to no ongoing account keeping fees
  • Absence of overdraft facility results in fewer surprises down the road
  • Online tools to manage your finances
  • Use of innovative tools to hasten the loan approval process
  • Lending solutions for small businesses


Cons of Neobanks

While using the services of neobanks comes with multiple advantages, there are some possible downsides that require your attention too.


  • Absence of branches means you cannot meet a bank representative in person, should the need ever arise
  • Legal framework surrounding consumer protection in regard to neobanks is still in the nascent stages in several countries
  • Not all neobanks have the required federal insurance to safeguard their customers’ deposits


Popular neobanks

The corresponding table lists neobanks from different parts of the world.

The U.S.Chime
The U.S.Simple
The U.S.Varo
The UKAtom Bank
The UKMonzo
The UKRevolut
The UKStarling Bank
The UKTallymoney
AustraliaVolt Bank
AustraliaTyro Payments
RussiaTinkoff Bank
LatviaCrassula Banking
KoreaK Bank

More neobanks are going to start offering different types of financial products to their customers, with several already moving beyond bank accounts and linked prepaid cards. Neobanks, without doubt, will need to pay close attention to banking regulations before entering any new market. What will help, from a customer’s perspective, is that traditional banks will have to keep pace with the shift in technology or risk losing out on their share of the pie.