A neobank is a banking entity that offers all its financial intermediation services exclusively through digital platforms. That is, they attend to the requests of their clients only online.
A neobank is a financial institution that only provides its services through the Internet. Thus, it does not have agencies or physical offices to receive users.
These types of companies are mainly aimed at the public that is familiar with digital media. That is, mostly millennials and their later generations such as centennials.
Difference between neobank and fintech
Neobanks, it is worth clarifying, are not the same as fintech. The latter are ventures that offer online financial services such as crowdfunding and crowdlending. And they can also be platforms that serve as intermediaries between the traditional bank and the user.
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Thus, a fintech can facilitate the carrying out of operations or payments from the computer or cell phone. However, unlike fintech, the neobank is not the intermediary, but the bank itself.
Now, the above does not mean that traditional banks cannot launch their own lines of business in the form of neobanks, parallel to their core business. Some companies have already been doing this.
Advantages and disadvantages
Among the advantages of neobanks, we can highlight:
- By not having physical agencies, they save various costs (maintenance, logistics and other operations). This can be passed on to clients, with lower commissions and interest rates.
- The procedures to contract a product or open a bank account are more agile in relation to traditional banking. This, being everything in digital mode.
- Customers are served through applications or from the website, which can be very satisfactory for users who prefer this type of platform instead of face-to-face procedures.
- Neobanks have undergone a process of expansion in recent years. And for that reason they could begin to be subject to regulation in the countries where they carry out their activities.
However, there are also some disadvantages:
- They are not entities subject to state regulation, which implies a higher level of risk for the entity’s clients. And this not only regarding the solvency of the neobank, but also other aspects such as the protection of personal data.
- It is not an attractive alternative for customers who are not familiar with new technologies.
- The clients of these entities are not protected by a deposit insurance fund. This is a fund that usually covers the deposits of savers from banks and other traditional financial entities up to a certain amount. This, in case the institution goes bankrupt.
- They are not widely available in all countries, and their product portfolio is still limited.
