What are neobanks?
The digital transformation in Europe, specifically in Germany and the United Kingdom, has generated new financial institutions that offer 100% digital banking intermediation , the neobanks. They are based on the fintech philosophy , or financial technology, but what is relevant is that fintech companies are not ordinary financial entities, but rather are intermediaries between banks and clients.
The neobancos have spread rapidly due to the cost structure reduced and its implementation and growth based on technology . The online service and the updated information in real time are part of its strengths for its potential clients, those people who do not want to do banking procedures in the physical branches of the entities.
With a small staff and automated services and functions, these entities realize significant cost savings . Their clients benefit from this, since there is no need to charge certain commissions and they offer greater transparency .
As we indicated in the introduction, not all these entities have a banking license for their activity. In reality, they can operate as a supervised electronic money institution (EDE), or as a private company offering financial services using an EDE as an intermediary. That is why they need banking agents to operate normally.
- Any operation is online and the contracting of financial products is entirely digital.
- The costs of maintenance are virtually nonexistent . Most clients do not pay commissions.
- The fact of not having a network of physical branches allows a reduction in costs that translates into a very competitive portfolio of services and products .
- In relation to their potential customers, digital natives incorporated into the banking market positively value being able to operate through mobile phones, through their intuitive apps .
- Users have financial information at their disposal in real time .
Banks vs nebanks infographic
Neobanks vs. online banks
Many traditional banks offer the option of digital banking, but an online bank and a neobank are not the same .
Online banks are designed for operations through devices with an internet connection. Instead, neobanks are designed to operate from a smartphone.
Online banks are traditional banks but neobanks are not, since the former are regulated as banking entities.
There is also a relevant difference: some are payment institutions (neobanks) and others, credit (online banks).
Advantages and disadvantages
- The client has total control of their finances through a mobile application, achieving cost and time reduction.
- The prices are very competitive, some services are even free.
- Digital operations offer many facilities, forgetting about administrative paperwork.
- They are very useful for operating abroad, as they include multi-currency operations.
- They accept the use of crypto assets.
- Its technological security measures are highly effective. They can include biometric systems, two-factor verification, advanced encryption, etc.
- Neo banks have less regulation than traditional banks, which implies certain insecurities for potential customers.
- Customer service has limited possibilities.
- They do not offer the comprehensive portfolio of financial products that banks do.