We live in the digital era – it’s how we work, shop and socialise. More recently, it’s how we bank – and neobanking is an increasingly dominant force in the financial world. 

But what actually is a neobank? In simple terms, it’s a 100% digital financial service. Here’s everything you need to know about neobanks, and how you can make the most of them.

So, what is a Neobank?

A Neobank is a financial technology (fintech) company that offers a 100% digital financial service. You can only access them using apps or computer platforms. These online banks are a type of direct bank (a bank without any branches, usually online or via phone), and help streamline the banking process and save you money by minimising the overheads of physical banking.

Neobanks are implementing increasingly advanced machine learning and AI technologies designed to monitor your spending, offer you budgeting and savings advice, and even make automated transfers into savings accounts. 

Neobanks aren’t constrained by the systems of traditional banking institutions, but they often partner with traditional banks, using them as ‘agents’, which enables them to offer insurance on the money held there. Some apply for chartered bank status, meaning they don’t need to piggy-back onto any larger banks, however this is a mammoth task that offers its own constraints, and is one many bypass.

What Neobanks offer

The key features on offer from today’s Neobanks are:

• Payment and money transfer services
• Individual and business loans
• Overdraft facilities
• Savings accounts
• Smart advice, offering tips and tricks for budgeting and saving

Neobanks are simple and easy-to-use. Their smart interactive features are designed to help you better understand and improve your saving and spending habits – you can set up spending alerts and auto-savings with many platforms on offer. The evolving marketplace gets smarter by the day, advancing with new AI technologies and developments in the tech field.

Is Neobanking for you?

When it comes to your money, you need to be confident you’re making the right call. If you’re on the fence and don’t know whether to ditch the traditional account, that’s completely understandable. At Quaife, we’ve put together an easy guide to help you decide whether you’re ready to make the switch.

The pros of Neobanking

• It’s cheap. Neobanking products are inexpensive, and carry little to no monthly maintenance fees.
• It’s convenient. Gone are the days of traipsing down to the bank to transfer money or apply for an overdraft. You can do everything from your phone, so you don’t even need to get out of bed to sort your finances.
• You can get smaller loans at better rates. Small loans for businesses are usually hard to come by, as larger banks focusing on larger loans and being less interested in funding small business. Neobanks are changing that.
• You can get things moving quicker. Neobanks use new technology to assess credit and streamline processes, so loans are approved faster and more efficiently.
• No more overdraft fees. Those pesky accidentally-overdrawn fees and surprise charges are usually non-existent too, as the banks will only let you spend what you have.
• It’s more ethical. If you use a smaller Neobank with no larger, ‘agent’ bank, your money is less likely to be invested in big-pharma, tobacco and the arms trade. You’ll need to verify this with the bank.

The cons of Neobanking

• There’s no bank branch. It can be frustrating not being able to pop into branch and chat to a human, and there isn’t always a number to call. Check out Neobanks with ‘agent’ banks, though, because you can usually use their branches for your face-to-face needs.
• You might not be insured. Check that you have insurance before committing. Funds at a neobank are subject to fewer regulations, so may or may not be insured by the federal government.
• They’re still ironing out some creases. Consumer protection is a grey area, because existing laws and regulations aren’t completely ready for the new tech. If problems arise with your app or service, it’s not always clear who takes the blame yet.

The bank of the future

Neobanks are ever-evolving, and as the tech gets smarter, existing Neobanks will venture out into new product lines, become more automated, and look to become chartered banking institutions. Whether or not you’re feeling ready to make the switch, the ease of use and global nature of Neobanking, combined with the low cost for both you and your bank, means it looks like that’s where the world of money is headed.