Are you a traditional fintech company looking to invest in neobanking? Neobanking has become a convenience in people's lives, where banking and transactions happen in just a snap! 

These banking services are totally on online platforms where they collaborate with or are an extension of traditional banks, making banking easier. Everything related to neobanks operates solely through digital platforms. 

Neobanking provides transparency and quicker bank-related tasks, one of the advantages of neobanks. Still, there are a few challenges compared to the traditional banking landscape. Because of their flexibility, neobanks are becoming popular and adopted by newer generations. The number of users is expected to grow to 386.30M by 2028.

This blog post will discuss the benefits of neobanks and how they’ve positively and negatively affected traditional banking counterparts. Understanding these benefits of neobanks is crucial for consumers and traditional financial institutions.

Read on.

What are neobanks?

Neobanks are the future of the fintech industry. In a world where 5G has taken over, people are used to speedy internet services and food delivery within 15 minutes. They won’t wait longer for banking operations or bear the delays.

That’s where neobanks come into action. A neobank is defined as a “modern bank.” This modern bank has no physical location but completely relies on online banking, meaning it’s virtual. 

One of the biggest advantages of neobanks is that they provide a mobile-first experience to transact and carry out other financial-related operations. Further, you may ask, how do neobanks make money? Primarily, they offer credit and lending services and other innovative products. 

Such multitudes of benefits of neobanks make it convenient for tech-savvy people to prefer them over traditional banks. These benefits of neobanks are driving their rapid adoption in the financial sector.

The rise of neobanks

Neobanks, also known as digital banks, are an innovation in financial technology for today’s generation. 

If you split the word “neobank,” you’ll get two words: “neo” and “bank.” “Neo” means new, depicting the latest technology bank. 

The word “neobank” was first coined in 2017 and described as an online-only financial services provider with no branches. This concept was first considered between 2013 and 2015 in various countries like the UK and Germany after seeing the range of advantages of neobanks. 

Neobanks provided more than just money transfers. Their smooth mobile apps and web interfaces offered various financial services. Due to multiple services and financial products, online banking tasks get done at your fingertips and are easily accessible 24/7. The advantages of neobanks, such as their accessibility and diverse service offerings, have contributed significantly to their rapid growth.

As several fintech companies and industries embrace neobanks, their popularity is rising. Neobanks are expected to grow 25-30% over the next five years. They expanded globally, especially in the US, Europe, China, India, Brazil, and Southeast Asia. These new digital banks provide convenience and low fees, which is a differentiating factor and among the best benefits of neobanks. Additionally, a neobank account is easier to open than a traditional bank. It is a user-friendly banking option, especially among younger consumers and small businesses.

Advantages of neobanks

Neobanks have almost replaced the traditional banking system. There’s no wonder why today’s youth would most likely choose neobanks over traditional banks. We have listed some of the advantages of neobanks to help you make an informed decision. You’ll learn how these benefits of neobanks make it an investment worthwhile for your fintech company.

Reduced costs

Neobanks have minimum charges and allow seamless money management and transactions. Overall, they allow your customers to have the same facilities at lower fees. It is one of the advantages of neobanks, where customers tend to use it more.

Streamlined services 

Unlike traditional and physical banks, neobanks operate 24/7, which allows customers to use online banking services through mobile apps and websites anytime. It removes the need to visit the branch or carry out other banking tasks that require paperwork, ultimately making banking services effortless.

Higher APYs 

Neobanks offer higher savings account yields due to lower operational costs. They attract customers with better interest rates and frequent compounding, making them a strong alternative to traditional banks.

24/7 access

Traditional banks have limited hours and holiday closures, leading to potential delays. In contrast, neobanks operate 24/7, allowing uninterrupted transactions and timely business operations.

Advanced technology

Neobanks leverage advanced tech, AI, and machine learning to enhance user experience with smart features like budgeting and custom insights. These tools offer tailored recommendations, helping customers manage their finances more effectively.

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Comparison of neobanks and traditional banks

Compared to the traditional banks, here are some of the features that a neobank should have to strive into the competitive banking world:

  • User-friendly interface: Neobanks should design mobile apps and websites that are easy to navigate, ensuring seamless and glitch-free user experiences to attract and retain customers.

  • High-security measures: As digital platforms, neobanks must prioritize security and transparency to assure customers that their money is safe.

  • Personalized financial technology: AI-driven insights help neobanks provide personalized advice, analyzing budgets and spending to align with individual financial goals.

  • Real-time notifications: Customers need real-time alerts for accounts, transactions, and banking operations, enhancing security and user satisfaction.

  • On-the-go payment solutions: Neobanks should offer seamless peer-to-peer transactions, digital wallets, and third-party app integrations to meet the demands of modern users.

One of the best advantages of neobanks is that they offer a fresh, innovative approach to banking platforms. In contrast, traditional banks have an established system that involves visiting the bank. 

Let’s compare and highlight the benefits of neobanks and traditional banks: The advantages of neobanks become particularly evident when examining the following factors side by side.

Factor

Traditional banks

Neobanks

Physical presence

They provide face-to-face services and accessibility across multiple locations. Interacting with customers and convincing or explaining to them makes it easier to maintain customer relationships.

Neobanks make money through digital sources, cutting overall costs and allowing for competitive customer offerings.

Licensing and regulation

Traditional banks are licensed and regulated by a country's central bank, like the Federal Reserve in the United States of America. The banks associated with them must follow strict rules to provide better security.

Neobanks operate without needing a full banking license. It relies on partnerships with traditional banks and other certain services for customers. 

Services offered

They offer many financial services. These include savings and checking accounts, loans, credit cards, debit cards, insurance, and more.

It mostly focuses on primary services. These include checking statuses for savings accounts, money transfer, transactions, and payments. It offers high-tech features and a user-friendly interface.

Fees and costs

They have higher fees, including maintenance charges and transaction fees. However, they also have lower interest rates and savings, so people save less and spend more.

Neobanks charge lower and more affordable fees for basic services, which often raises savings interest rates and is one of the important factors that cause customers to lean more toward net banking.

Challenges faced by neobanks

Despite the various benefits of neobanks, there are still some challenges attached to it. As neobanks continue to expand, the transaction values are projected to surge from $6.37 trillion in 2024 to $10.44 trillion by 2028, which concludes that their use will continue to rise. 

Neobanks should prepare to overcome challenges despite a user base of 386.30 million by 2028. There are various challenges. Let’s explore them further.

Cybercrime

Cybercrime poses a significant risk to the overall banking industry. It is the widespread use of overall internet technology. A 2019 Accenture study of 11 countries and 15 industries found that cybercrimes caused $394 billion in losses from 2019 to 2023. 

Competition

The neobanking sector is rapidly growing, attracting many new players to the market. Due to rapid market growth and quick human adaptation, multiple competitions are emerging. Traditional banks have also advanced. Sidenote: the earlier you start, the more likely you will thrive in this industry.

Customer acquisition and retention

Neobanks face the problem of consistently acquiring and retaining customers. Because of their newness, it currently takes time to obtain trust from users and customers. The solution? Neobanks must innovate to keep up with the market. They also need a customer base for growth. Ultimately, customer acquisition is harder than we think with neobanks.

Lack of physical presence

There is no physical branch of a neobank like traditional banks. There are pros and cons of neobanks not having physical branches where customers can visit. An online bank has no overhead costs. For some customers, it's hard to solve problems online. A face-to-face understanding is needed. 

Building trust and brand recognition

For most neobanks to become successful, it is important to acquire the trust of customers and users, especially for online industries where security and reliability are vital, which help users gain the trust of potential neobank customers.

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Cases: Success stories in the neobank sector

Here are some of the most popular neobanks in the world. Their stories and the many benefits of neobanks can help you understand why you should expand your fintech brand to this new banking era!

Starling bank

Starling Bank, a UK neobank, has made great strides in the digital banking experience since its 2014 launch. Starling has a user-friendly app and innovative features and offers personal, business, and joint savings accounts. It provides a full range of digital banking services.

Revolut

Revolut, founded in 2015, is a global fintech powerhouse with over 28 million users. It began as a currency exchange service and now consists of financial technology that includes savings accounts, stock trading, and crypto exchange. The credit for its success goes to the neobank’s ability to innovate and add features, making it a one-stop shop for financial services.

N26

N26, a Berlin-based neobank, is a pioneer in the European digital banking space. N26 launched in 2013. It offers a mobile-only bank. It focuses on simplicity and transparency. It has attracted millions of users in Europe and the US by offering a seamless, fee-free banking service. 

Chime

Chime, founded in 2013, is one of the leading neobanks in the United States. Chime is popular with younger consumers for its fee-free banking. They have introduced a no-hidden-fee approach and early direct deposit. With over 12 million customers, Chime is a major U.S. neobank.

The Future of neobanks

So, you have seen the advantages of neobanks and how great they are. But what about their future? As per experts, the future of neobanks will be shaped by continued growth and technological innovation. 

As digital banks become increasingly central to consumers' lives, neobanks are expanding rapidly, with transaction values projected to climb from $6.37 trillion in 2024 to $10.44 trillion by 2028. This growth is fueled by their ability to deliver personalized, on-demand services that cater to the evolving needs of modern consumers. 

At the core of this expansion are technologies like AI and Blockchain. AI enhances customer interactions, automates tasks, and provides real-time fraud prevention. Meanwhile, Blockchain improves banking security and transparency.

These technologies let neobanks offer better, safer, and more personal services. They are now leaders in the changing financial market. 

Successful neobanks often collaborate with technology partners to enhance their offerings. We at Geniusee specialize in AI and blockchain technology applications for financial services. We recently did a project that involved the development of Zytara, a digital banking application tailored for Generation Z users. This platform integrates blockchain technology to provide a secure environment for traditional banking services while also incorporating gamification elements to engage its target audience.

Conclusion

Neobanks, aka online banks or challenger banks, are new-age banking solutions revolutionizing the financial sector. The advantages of neobanks, including their cost-effective and user-friendly services, cater to the modern demand for digital convenience. Financial institutions and the largest neobanks use advanced technologies like AI and Blockchain to prevent fraud and offer secure, personalized services. These banks also innovate by delivering high APYs and streamlined services. 

As neobanks make money primarily through lower fees and innovative financial products, their growing popularity signals a shift in how financial institutions will operate.

Considering all the many benefits of neobanks, are you ready to invest in them and be future-safe?