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What Is a Neobank?

Neobanks are financial institutions that only conduct transactions via online methods. The offerings of a neobank usually have many limitations and difficulties compared to traditional banks. The compact model often allows neobank’s customers to enjoy fewer fees and higher interest rates than the average.

Find out how neobanks work, what they offer and what their customers expect?

What Is a Neobank?

Neobank is a financial technology company that provides financial services such as payments, money transfers, online shopping through an application using the internet and does not have any branches or transaction points. Neobanks attract tech-savvy consumers who don't use cash and prefer to use smartphones.

Neobanks develop on the platform of blockchain technology and artificial intelligence (AI). By eliminating traditional points of the transaction and going online completely. This helps new banks in terms of physical costs, large fixed costs. 

What is a neobank?

Neobanks do not provide the same services and do not have a common structure for them. Besides, they also have changed and been more modern than traditional banks, especially:

  • No strings attached to state or municipal regulators such as banks. Conditions to state or federal regulators such as banks
  • Provides a complete and seamless process on mobile devices such as smartphones, tablets.
  • Cooperating with traditional banks to help customers in securing their money in virtual accounts.
  • No credit extensions (such as overdrafts).

 

How Neobanks work

Developers come up with a solution to minimize top-neobanks into a smart finance application based on customers’ demand. It’s not hard to use and there are not many financial barriers. As a fintech operator, this requires digital banks to upgrade not only finance but also technology. Besides, The requirements relating to KYC  are always on top priority.

For consumers who are savvy and prefer to use smartphones, it is very easy to create a digital account for themselves. Obviously, this requires a bank account to protect consumers' wallets. Additionally, customers do not need to give their signature or other security papers other than taking photos of identity cards.

Banks’ services are similar and different from physical-banks. Such services include:

  • Deposit and savings accounts
  • Payment and money transfer services
  • Financial Education Payment Tools.
  • Setting up a personal spending budget.

 

Most neobanks do not offer credit accounts or, or if available, they will be limited to avoid currency risks and reduce unnecessary costs. However, some neobanks provide loans to individuals and businesses through partner’ banks and credit companies. 

How Neobank Work - Neobank meaning

Some neo-banking startups proliferated in the first period, so they still face many difficulties in the procedures and regulations of the State Bank. It is an important commitment to become a traditional bank, so many neo-banks are allied directly with physical banks.

Large-scale banks also recognized the market's need for neo-banking and began launching similar services to cover the market. In addition to the purpose of attracting new customers and retaining loyal customers, this is also the way to help traditional banks do not fall behind the 4.0 society that is expanding every day. Bank of America, for example, also had to be supported by a "financial assistant" and use artificial intelligence to establish a neobank called "Erica" that could be used for smartphones.

How to: https://finfan.medium.com/neobank-is-really-better-than-traditional-banks-fcab7a5811e1

Clarify the pros and cons of Neobanks

Advantages of neobank

  • Low cost, no extra fees: regulations and transaction settlement process are greatly reduced. In addition, the fixed fees related to transaction points and transactors have been completely eliminated.
  • Convenience, simplicity: Neobank allows customers to perform all their transactions on a smart mobile application. 
  • Fast processing time: Each transaction has an average processing time of 2 seconds or 1 minute to complete the steps. Much faster compared to traditional banks with the transaction time is up to a few hours 
  • No need to use cash: Up to ⅓ people using neobanks accept not using cash within 03 days. This shows the attraction and safety of these neobanks
  • Easy to manage expense: All transactions are clearly shown in "Transaction history" as well as the intelligent technology apparatus that also helps customers calculate their spending most correctly and objectively.
  • No need for transaction points: Since all transactions are processed directly on the mobile application, there is no need to arrange a time to reach the counter.

Neo-banking’s defect 

  • Smartphone using capacity: It is difficult for customers who cannot use smart apps.
  • Less regulated than traditional banks: Since neobanks are not considered legitimate banks, neobanks cannot perform access or authentication procedures from customers if they have provided the necessary information. Mistakes and frauds about users’ access can happen when the customer is the target of the bad person. But neo-banking companies are using their best effort to ensure the safety of customers' deposits.
  • No visible bank branches: Neobanks are often directly linked with the banking system to the ATM network, but some people want to go directly to the transaction point, it is not possible for the bank. This is especially true when it comes to complex transactions. While many neobanks offer powerful customer service tools, some clients prefer to ask questions in person.
  • Trouble solving: The easier it is to execute a transaction, the more likely it is that unexpected transaction errors will occur.
  • Many retailers have not yet accepted this form of transaction: Many businesses and individuals have not used online payment methods or have not yet known this method. This makes customers difficult to find the service they want.

 

Therefore, are neobanks really safe for users? And what is the future of neobanks?

 

Neo-banking startups

Luckily, they are just as safe as traditional banks. Neobanks also have to obtain all kinds of permits and approval of the state bank (SBV). As mentioned above, they have to have similar services to state banks and some basic services required to be in a "bank".

"Your money is still in your pocket in a safe way." 

Best neobank in the world

Neobanks are raising big bucks to compete with traditional banking institutions not only in proliferated markets but all over the world. Let's find out who they are, the best of neobank in the world, the leading company of the fintech industry.

N26,

N26 is the best neobank. It builds the N26 branding in European Internet Bank with its head office in Berlin, which offers its services in the EU, UK, and USA. …

Launched: 2015

Revolut,

London neobank Revolut is considered to be one of the tops in the digital banking sector. The company is equally growing up in Europe as well as in the Asia-Pacific region and the Americas.

Monzo,

Monzo is considered to be the best neobank in the world. Monzo set the record when it led to raising £1m in under 2 minutes, using the Crowdcube investment platform. 

Key Takeaways:

  • What is a neobank?: Fintech companies develop service as payment, remittance, pay bill, .. in the mobile app.
  • Digital banks do not have any branches.
  • They operate on technology and digital platform.
  • Provide less service than traditional banks to avoid money risks
  • Neobanks are often built from a physical bank or possibly be part of a finance company.