ALL ABOUT NEOBANKS

Neobanks are only online financial institutions or banks that are identical to that of the conventional banks. The offerings of a neobank are usually confined when compared to conventional banks - sometimes no more than a simple savings and current account. The slimmed down model often permits and allows neobank customers to enjoy less fees coupled with higher than market interest rates. 

In this article, we are going to talk about significant aspects and gain a detailed understanding of Neobanks!

DEFINITION AND EXAMPLE 

Neobanks are financial technology firms that offer only internet services and have no physical branches. They appeal to tech savvy customers who do not mind doing most of their money management through a phone application. Neobanks do not integrate new tech solely for the sake of being cutting edge. 

By getting rid of offline and physical branches and offices, and moving everything towards online, Neobanks often save the banking costs permitting them to cut fees and expand services to the underbanked. 

Neobanks are not similar in their structure or offerings but they typically differ from credit unions and conventional banks in that they:

• Are not charters with central or state regulators as banks
• Provide a streamlined process designed mainly for the purpose of mobile devices.
• Partner with conventional banks to federally insure customer deposits
• Do not extend credit like overdrafts

WORKING OF NEOBANKS

From a customer point of view, a neo bank might amount to no more than a normal mobile app we use to manage our money and make decisions. For those who are very much comfortable with tech, these are accounts which are way easier to set up. You can often establish a relationship with a neo bank and initiate using their services without signing any physical paperwork and just signing up for an accountant downloading the app.

Neobanks' offerings are identical to those at conventional banks but more limited. They generally offer:

• Current and savings account
• Money transfer and payment services
• Tolls related to financial education like budgeting assistance.

Most neo banks offer confined or no credit to keep their risks in limit which assists them to cut the costs. Nevertheless, some neobank offer loans for businesses and individuals through partner banks and credit unions. Others were lenders before they offered features of neo banks and hence they can offer both deposit and loan services. 

MERITS OF NEOBANKS 

1. Convenient:

Neobanks allow you to do the majority of the banking through a mobile application. Moreover to basic banking activities, users should be able to manage the finances and activities of their account to prevent any problem. 

2. Cost cutting:

Less compliance, fewer regulations and the absence of credit risk permits neobanks to keep their costs down. Products are typically not expensive with no maintenance fees. 

3. Quick processing time:

These tech savvy instruments permit customers to quickly process requests and set up accounts. Neo banks that offer loans may skip the rigid and time consuming loan application processes in favour of innovative strategies for evaluating the credit and fastening the process.

DOWNSIDES OF NEOBANKS

1. Less regulated:

Since neo banks are not legally considered as banks, you might not have any compliance and legal recourse or well defined processes to follow if there is a glitch with the app, services or non regulated 3rd party service providers. 

2. Requires tech comfort:

If you do not like keeping up with the emerging tech trends, you might want to avoid banking with cutting edge institutions like neobanks. You won’t be able to take full merit of the offerings if you are not comfortable tapping and swiping your way through brand new and updated applications. 

3. No physical presence:

It is becoming increasingly easy to do everything online and neo banks often maintain partnerships with networks of ATMs but some people want the ability to visit a branch and bank in person, specifically when it comes to complex transactions. While many neobanks often have robust customer servicing tools, some customers may prefer to ask in person questions.