Neobanks: A Comprehensive Guide to Digital Banking

Fintech (financial technology) has been changing how financial services are provided and used for many years now. But did you know that fintech “banks” exist as well? These fintech companies, or neobanks, are attempting to change the banking industry by making banking more convenient and accessible.

But is a neobank right for you? Here’s everything you need to know about neobanks, including their benefits and drawbacks, as well as a few popular examples you may have heard of.

In this article

• What is a neobank?
• What are some examples of neobanks?
• Pros of neobanks
• Cons of neobanks
• FAQs
• Bottom line

What is a neobank?

A neobank is typically a fintech company that offers financial services you might expect from a traditional bank. These could include checking accounts, savings accounts, credit cards, and more.

Neobanks are sometimes referred to as “challenger banks” because they challenge the traditional banking industry. In some cases, traditional banks such as Chase and Citibank can trace their histories back for centuries. But neobanks are often startup companies that haven’t been around for many years and don’t tend to have in-person locations.

Rather, these digital banks gravitate toward offering online-only services, typically through web browsers and mobile apps. In comparison, many traditional financial institutions offer a hybrid business model with both in-person and online services. This hybrid model might seem more beneficial at first glance because it can appeal to a wide variety of individuals, but having in-person branches can also come with big overhead fees.

Neobanks typically don’t have many of the costs associated with in-person lenders, such as upkeep and maintenance costs, as well as hiring employees. Given this, the appeal of these new challenger banks is the offer of better rates, lower fees, and more convenience. In addition, focusing on online services could help these digital banks resonate with tech-savvy millennials and Gen-Zers.

What are some examples of neobanks?

Although you may not think you know of any neobanks, it’s possible you might have heard of a few. Many of the most popular neobanks, such as Current, Aspiration, and Varo, have millions of customers. Surprisingly, none of these companies are even 10 years old, which goes to show how successful and disruptive neobanks can be in a short period of time.

Here are some of the top neobanks:

Current

Current was founded in 2015 and offers banking services in partnership with Choice Financial Group and Metropolitan Commercial Bank. Current offers a personal checking account and debit card that can be accessed through its mobile app on iOS or Android devices.

Current offers loads of perks and benefits, including getting your direct deposit up to two days early and the opportunity to open teen checking accounts. Your deposits are FDIC-insured up to $250,000, and you also have minimal fees, such as fee-free overdrafts on up to $100, no minimum balance fees, no bank transfer fees, and fee-free ATM withdrawals from more than 40,000 ATMs in the Allpoint network. In addition, your debit card offers cash back from more than 14,000 participating merchants.

For more details, check out our Current review.