Historically, the banking industry has been a monopoly, with the big players holding power. But a new class of digital-only institutions is disrupting the industry. Until recently, the banking sector has been a highly impenetrable market. However, as confidence in traditional banking systems is constantly decreasing, "neobanks" are moving up.
Neobanks are the new type of digital-only financial institutions, emerging to leverage the public's resentment towards traditional banking incumbents. A survey performed by YouGov's reports that 10 years after the 2008 financial crisis, people's trust and confidence in banks is at an all-time low. According to the survey, two-thirds of adults in the UK believe that banks don't have their customers interests in mind. Also, 75% of British adults consider that banks should have incurred more severe penalties for what happened during the 2007-2008 financial crisis. "Neobanking" has become a popular term in the media, but what exactly is it? Here's a brief about neobanks explaining what they are, how they work, their advantages, and how your business can enjoy streamlined banking solutions.
What Is a Neobank
As part of the challenging-banking sector, a neobank is a digital-only bank without any physical branches, and that’s exclusively controlled through a mobile app. The app enables consumers to manage and administer their accounts and credit cards, while customers have an account opened with an underlying bank, which has a bank license. Neobank’s capitalize on the deregulation aspect of the Payment Service Directive2 (PSD2)
How Do They Work
You won’t find a standardized definition for what a neobank is or how it works. The challenger banking ecosystem is fluid. From the clients’ standpoint, a neobank looks and works just like an app that helps you manage and administer your money to make the right decisions. It’s user-friendly and doesn’t have a bad reputation like most banks have earned over the years.
Neobanks operate on the basis of open banking protocols. And customers enjoy increased and transparent access to their financial information. So, different services collect data from a variety of trustworthy and secure sources to offer smart solutions on user-friendly interfaces. It’s now easier than ever before to have all your financial details centralized.
You’ll find that several neobank startups attempt to become licensed banks. But that’s a difficult undertaking. So, most form partnerships with existing licensed banks. This way, neobanks can provide deposit insurance on the money held in your account. Take, for example, Chime Bank, which is a neobank that formed an alliance with the Bancorp Bank to offer financial solutions to its client.
Neobanks function as an interface with existing bank accounts. But not all customers are aware of the underlying relationship between the neobank and the licensed bank. Also, they add different functionalities and streamline the user experience with the bank or credit union. So, neobank systems are 100% innovative and they’re not just front-ends for traditional banks. Still, they don’t replace the underlying financial institution. But they compete with traditional banking institutions due to their advanced features, low costs, user-friendly interfaces, customized services, and optimized onboarding.
Neobanks are innovative apps designed around the customer’s needs. These apps include highly customizable solutions to meet users’ requirements and to help clients understand their personal finances. This way, clients can focus on their savings and they can make the right financial decisions.
Once you’ve downloaded the preferred neobank on your smartphone, you can open an account in a matter of minutes. The process is streamlined and everything is done through the app. You’ll receive a free debit card, which you can manage from the app. Also, in case of fraud, you can freeze your card or easily change your password without any extra charges. You can use your debit card abroad and make international payments with current exchange rates and low costs.
The user-friendly interface and responsive design offer immediate access to your finances and seamless user experience. Also, in case you need help, neobanks offer 24/7 customer support through the app. Usually, you’ll find a chat feature available. Neobanks also guarantee a centralized overview of your account information, updated transactions, and balances. That’s not all. If you want to receive any notifications about your transactions, you can establish the rules through the app. And to save money, neobanks include features to help you reach your financial goals through budgeting solutions.
About Business Account For Neobank
Neobanks are changing banking for SMEs and enterprises. You can open a business account with your preferred neobank in about 10 minutes and enjoy streamlined banking and accounting processes. You’ll receive a current bank account for your company, debit cards for your employees, real-time expenses overview and highly customizable features. And you can establish different spending limits for each user and control your team’s expenses with personalized notifications. Also, you can add receipts to any transaction in one simple click.
Thanks to an automated system, a business neobank account will synchronize all your transactions in real-time and you can create invoice rules to verify when they’re settled. Just connect your business’ accounting software to your neobank business account.
A neobank business account guarantees deposit insurance up to different limits and full compliance with data privacy regulations. All costs are transparent and you’ll enjoy streamlined cash flow management. But there’s more. Thanks to top-cybersecurity solutions and SSL-encryption of all your sensitive data, your business will benefit from the highest security level available on the market.
Different Neobanks In The UK
Challenger and neobanks are transforming a sector, which was previously dominated by the big players. Today, you’ll find over 50 banks operating in the UK, with over 20 banking licenses awarded during the past 3 years.
The challenger banking environment comprises a variety of innovative banking solutions such as mid-sized banks like Tesco Bank or Virgin Money, specialist credit lenders like Aldermore of Oaknorth and neobanks like Monzo and Starling.
Most neobanks that target a younger audience don’t even have a banking license, they consider themselves as tech companies rather than financial institutions. Although in the UK, big banks still maintain more clients, they’re working to become more innovative and streamline customer experiences with a variety of digital solutions. Take Mettle for example, which is the new app launched by the Royal Bank of Scotland. It’s an autonomous neobank for SMEs in partnership with 11: FS and Capco. It offers business current accounts and other services such as invoicing or cashflow predictions.
The business neobank Tide is based in the UK and provides fast and convenient mobile business services for SMEs.
Monese is a financial services provider based in the United Kingdom. It provides instant current accounts to residents of the UK and Eurozone.
Holvi is one of the leading neobank for entrepreneurs and freelancers. It was founded in 2011 and has headquarters in Helsinki, Finland but operate in Europe.
Launched in 2016, Starling Bank has already made an impact winning several awards from the banking industry in 2019.
Launched in 2015 in UK, Revolut has the most extensive customer base worldwide, with an extension to over 31 countries.
Founded in 2017, Monzo neobank is an online bank that serves individual and business customers in the United Kingdom.
N26 is a german fintech bank lauched in 2016.
The Bottom Line
Neobanks are disrupting the traditional banking system by offering fully integrated solutions and a customer-focused approach to banking. But because they currently don’t have the customer base of existing banks in the UK, they’re at a disadvantage in terms of income flows. But they can overcome the setback. According to Sukhjot Basi, the CEO and Co-founder of Bank Yogi, thanks to the low entry barriers, which allows them to accept more customers who don’t qualify for a traditional account due to lack of credit score or a stable job, neobanks have increased market opportunities. And, by offering low costs, seamless user experiences and top-level security, they have a fighting chance to surpass the big players in the UK’s traditional banking sector.