Have you noticed new companies popping out of nowhere, offering great credit cards, bank accounts, and other financial services? Companies with a massive digital footprint, but almost zero physical footprints.
Welcome to the world of digital banking. Digital banking or Neo-Banking is the next natural step that the financial industry will take, at least according to some industry experts.
Every now and then there’s someone who asks what are digital banks, how they operate, and how are Neobanks different from Traditional banks.
The word Neo comes from a Greek word that basically translates to “new.” So, Neobanks is a clever way of saying that this is the new age of banking. Similar to traditional banks, they offer savings accounts, current accounts, loans, money transfers, credit cards, and more.
So what’s the actual difference between the two? That’s what we’ll help you figure out.
There’s a huge list of similarities between Neobanks and traditional banks, but they’re still fundamentally different. Let’s go over the list of differences between Neobanks and traditional banks.
Unlike traditional banks that have branches all over a location, neobanks have no physical locations you can visit. The entire infrastructure is online, and you can handle every setting of your account with an app.
This online-only model helps in saving thousands of dollars on operations costs, and costs that come along with running physical locations.
Traditional banks historically have had a physical presence, and in recent years they’ve started to get into digital banking more deeply. Compared to digital banking services offered by traditional banks, Neobanks’ services are more user-friendly and easy to use.
While they’re called banks, neobanks are actually financial institutions. The difference between neobanks and traditional banks is that traditional banks need to have banking licenses. Neobanks are not recognized as an official entities by regulatory bodies, and thus they don’t have to follow regulations.
They utilize this saved money to provide better services at a lower cost to customers.
Some neobanks may have partial, full range, or a special banking license. A banking license allows neobanks to offer all kinds of banking services.
As neobanks have no physical operations to run, they can save more money, which allows them to be more affordable. They have no opening fees, low maintenance costs, no minimum requirements, no hidden fees, and they offer higher saving interest rates.
Neobanks also tend to be more transparent with their fees upfront. Traditional banks tend to have a lot of hidden charges that consumers may not understand at first.
Compared to traditional banks, every single activity in neobanks is easier to do. Opening up a new account and signing up is far easier than traditional banks. It is also easier to borrow money from a neobank compared to a traditional bank.
Signing up for a credit card, or applying for a loan at a traditional bank means you’ll have to pass a range of checks.
The biggest difference between a neobank and a traditional bank is the number of services offered. While Neobanks are faster more, user-friendly, and flexible, they often have one or 2 main services.
Comparatively, traditional banks have a wider reach all thanks to their physical locations. People who don’t yet trust online banking, or haven’t had exposure to online banking services still prefer traditional banking over newer methods.
The popularity of Neobanks has grown tremendously over the years. This is because of those who want the convenience of online banking. At the same time, traditional banks use their old-age methods of maintaining quality relations with their customers.
Neobanks are going through a great phase throughout the world. Millions of customers rely on their services, and industry experts are waiting for the future. Currently, the situation is that more users prefer traditional banks over neobanks as they’re more easily available and more reliable.
Customers can actually go to a physical office or talk to a representative when they have a grievance. The same can’t be said for a neobank.
The better bank depends on your needs. Based on your service requirements, the better bank for you can differ greatly. Neobanks have lower fees, they’re easier to sign up with, and they’re great for tech-savvy people.
Traditional banks are more reliable, have physical accessibility, and they’re regulated. But they’re more expensive, offer lower interest rates, and more.
The most common traditional banking services include:
It comes down to the level of due diligence an institution has employed. Being more tech-friendly, neobanks generally offer better security. They have simpler onboarding, yet they do ID verification, and KYC checks.
However, traditional banks have huge infrastructure and years of experience under their belts. Moreover, they have to follow regulations set by regulatory bodies.
In the end, it comes down to the level of customer due diligence an institution employs.
No, most neobanks don’t have a banking license. Although, there are chances that some neobanks may have a partial, full, or special banking license. With these licenses, neobanks can offer services that a traditional bank can, with more focus on user experience, and affordability.