Finserv Glossary

Neobank

What is Neobank?

Neobanks, sometimes called challenger banks, are fintech companies, often startups, that offer nontraditional banking services digitally. Typically, as noted by bankrate.com, these companies provide checking and savings accounts through a mobile app or website and do not have branches. It is common to find neobanks that include tools to help customers budget and reach savings goals. Neobank customers often enjoy lower fees and higher interest rates than their traditional counterparts. These have been increasingly popular for tech-savvy users and customers who expect easy mobile access 24/7, and appreciate early access to direct deposits offered by many, compared to standard banks.

Neobanks aren’t a new concept, having arrived in the 2010s after the Great Recession, and they are gaining popularity in the U.S. Data suggest there are about 23 million neobank customers. That number is expected to more than double, to 50 million, by 2025.

Unlike traditional banks, most neobanks aren’t chartered, but it’s common for neobanks to partner with chartered banks. An affiliation with a chartered bank may mean your deposits are insured by the Federal Deposit Insurance Corp., but check for the FDIC logo to be sure.

Most neobanks offer a low or no fee structure and early deposit access to cater to all consumers, whether strapped for cash or not, notes bankrate.com, adding that the approach is 100 percent digital with intuitive mobile apps and user-friendly websites. Neobanks strive to give today’s banking customers the convenience, flexibility, and transparency they’re increasingly seeking. No physical branches, no in-person customer service, money which may not be FDIC insured, and the inability to offer one-stop shopping for other accounts, such as mortgages or auto loans, are features lacking in neobanks, compared to standard financial institutions.

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