The Rise of Neobanks - Is It Changing the Way People Spend Online?

So much has evolved and changed in the world in the last few years, never mind the last decade, that it can be difficult to keep up with the latest technological advancement. So, if the term “neobanks” sounds a little foreign to you, don’t worry. Most people will look at you blankly if you casually try to throw it into conversation. The irony is that most people are likely affiliated with neobanks without even realising it! Let’s look at what they are and how they are changing the way people spend money online.

What are neobanks?

OK, this is what you came here for, right? Neobanks are “alternative” banks often owned by fintech companies who have created tools or software that streamline online and mobile banking. Many of these companies are challenging the status quo by adopting an online-only business model that enables them to offer low or no-fee banking services. The popularity of these neobanks is being driven by digital nomad Millennials and Gen Z’s, who would rather poke their eyeballs out than stand in a queue at a bank and speak to an actual human. No thanks. Their purpose is to make sending money anywhere in the world simpler and easier, so they’ve become a top payment gateway amongst online casino punters, freelancers, and even businesses.

How do they work?

Unlike a traditional bank, where you may have to visit in person to set up your account, everything happens online with neobanking. You can register and set up an account from your smartphone in a couple of minutes, which meets the evolving needs of modern users who are short on time and want to get things done as quickly and efficiently as possible.

Like your regular bank, neobanks will offer savings and checking accounts. The only difference is that you’ll set it up online without entering a local branch. Most neobanks also provide a physical debit card over and above your virtual cards.

When it comes to credit, there’s a whole lot less red tape. Traditional banks shy away from giving self-employed individuals or start-ups any line of credit, but neobanks are disrupting this outdated notion by extending credit offers to their customers. They base these decisions on real data, such as the historical performance of a business or the average income of a freelancer. They don’t just stamp a request for a credit card as denied when they see a “flagged” label pop up.

Neobanks also often offer customers personal and business finance, aiming to bridge the gap created by traditional banks. For example, start-ups are often judged unfairly and rarely given any start-up loan to grow their business further simply because they’re viewed as too high risk. Neobanks, many of which began their journey as risky start-ups themselves, understand the challenge of securing financing.

How are they changing the way people spend money online?

Enhanced user experience: Neobanks tend to provide a more user-friendly and intuitive online banking experience than traditional banks. Their platforms are designed with online and mobile banking in mind, facilitating seamless online transactions. This makes it much easier for users to send, receive, and exchange money.
Real-Time transaction notifications: Track your spending in real-time with instant notifications for every transaction. When you know where your money is going, you’ll be encouraged towards more mindful spending.
Budgeting & financial management tools: Most neobanks offer robust financial management tools to help you stay within a budget, set financial goals, and monitor your spending habits.
Lower Fees: Maintaining physical branches is costly and results in most traditional banks carrying very high overheads. On the contrary, operating entirely online enables neobanks to invest entirely in their user experience, part of which is offering lower fees all around. This ensures all your transactions are much more cost-effective than they would be using a traditional bank.
Innovative payment solutions: As fintech companies themselves, neobanks are all about innovation and integration. Their purpose is for banking to become as simple and hassle-free as sending a text. So, they’re usually first in line to adopt new technologies like contactless payments, peer-to-peer transfers, and other fintech services. This ensures every transaction you make is seamless and integrates with other financial services you may use (e.g., Venmo, PayPal, etc).
Support for global transactions: The world has truly become a global marketplace where no place is too far to do business. Neobanks focus on providing easier and cheaper international transactions to benefit customers who have overseas clients, shop online or travel frequently.
Personalisation: These innovative companies used AI and analytics to offer enhanced personalisation with tailor-made recommendations based on your spending habits and financial history.
Security: You’ll find the security measures put into place by neobanks even more robust than those used by traditional banking apps. You’ll likely encounter advanced security features like biometric authentication, AI-driven fraud detection, and virtual cards to keep you safe while spending money online.
Accessibility: Not everyone has access to traditional banks for reasons ranging from living in rural areas to simply not meeting the criteria to open an account. Neobanks break down these barriers, making opening a bank account and managing your money more accessible for people from all walks of life.

What are the most popular neobanks?

There are plenty of neobanks to try out, but these rank under the top 10 in the world.

Revolut

Revolut was founded less than a decade ago and has since grown its user base to over 35 million individuals. Over and above this, the UK-based firm has over 500 000 business users signed up. Their roughly 6000 employees help to keep this global player operating smoothly. Revolut’s mission is clear: simplify everything related to money. The neobank offers everything from physical debit cards to foreign exchange, stock trading, and crypto trading.

Chime

Chime is one of the most well-known neobanks in the United States at present, with an impressive user base of over 12 million. They provide low-cost online banking services and debit cards to Americans who feel traditional banks are overlooking them. Some of their unique offerings include opportunities to help customers build a credit profile and automated savings accounts with a decent annual yield. The goal here is to not only lower the cost of banking but to improve the financial well-being of their customers.

NuBank

NuBank was founded in Brazil in 2013 and has since amassed a user base of over 70 million across Latin America. They rely on AI and similar technology to create financial solutions that serve individuals and SMMEs in what is an often severely underserved region. The financial industry in South America is quite complex, so NuBank’s goal was to address this with their financial products and to teach financial literacy that would empower locals to take back control of their finances. This would essentially contribute towards breaking the poverty cycle.

SoFi

Founded in 2011, SoFi is one of the original neobanks whose initial mission was to assist students in paying back their debt. In its infancy, the company appealed to alums to fund student loans. It has since shifted to a non-traditional lending model that awards loans to customers who demonstrate their ability to pay back the funds. In addition to their core offering, they have expanded their services to include checking accounts and investments with options to consult with financial advisors or brokers.

Monzo

Monzo is another UK-based neobank that was first launched in 2015 and has since grown to serve over 8 million customers. Their business model is built around giving you access to a bank that “lives on your smartphone” to meet the demands of modern life. Monzo customers can open current accounts and have prepaid debit cards. Businesses can also use Monzo’s features by sending invoices and payment links on the go for streamlined cash flow management.

Starling Bank

All about girl power? You may want to sign up and join Starling Bank because it is the first-ever female-founded bank! The UK-based neobank offers customers business and joint accounts, making managing your money on the go easier than ever.

Conclusion

While most industries speed ahead to keep up with the evolving needs of new-age customers, traditional banks seem to lag. Perhaps it’s all the red tape and bureaucracy, but as hard as they try to innovate, they can’t hold a candle to neobanks. It really gives you something to think about as the world becomes more interconnected than ever before. Will you listen to the likes of Starling Bank and #breakupwithyourbank? Or will you test the fintech waters before jumping ship?