How often do you visit a real, physical bank? Unless you work in a cash-heavy business, use a lot of checks, or really enjoy talking to your bank teller, probably not often. Our financial lives are increasingly going digital, and a new breed of bank, the “neobank,” is betting on mobile finance to be the new normal. Since they operate exclusively through an app interface, they don’t have to deal with maintaining any physical infrastructure and can focus on providing cheap, well-designed banking apps. This comes with some downsides, of course – interest rates tend to be lower, and the products tend to be simpler – but mobile-only banking is worth a closer look.
How is a neobank different?
There are a few things that set neobanks apart from what we’ll call “traditional banks” – large institutions that either work online or through brick and mortar locations.
- Interface: Traditional banks tend to have physical, Web, and mobile interfaces. Neobanks are almost all exclusively mobile, which may be a dealbreaker if you prefer using your computer to bank.
- Fees: Since their physical overhead is miniscule and they operate more like a startup than a bank, neobanks generally offer very low account fees. No monthly maintenance, no account minimums, limited ATM/foreign transaction fees. In a word, no weeding through fine print checking for fees.
- Interest rates (APY): Unfortunately, because they often operate on a thin margin, neobanks don’t really provide much in the way of returns on your money. They usually offer checking accounts, which aren’t a great place to store your money long-term anyway.
- Bank licenses: Neobanks aren’t really “officially” banks. Most of them partner with a bigger bank and use their license to conduct banking operations. This doesn’t really affect the users much, though it can be a limiting factor for the neobank.
What do neobanks offer?
One of the most well-known neobanks is named “Simple,” which sums up the general neobank philosophy pretty well. Traditional banks offer a lot of different products, a lot of different interface options, and may come with a lot of strings attached in the form of hidden fees and other annoyances. Neobanks aren’t here to help you manage your investments or be your financial advisor; they’re mostly trying to make money easier and more convenient for you to use.
- Budgeting/spending analysis tools: Since checking accounts are mostly for storing the money you need to spend on a regular basis, it’s a good idea to have an idea of where your money is going and maybe to plan for various goals in the future. A lot of neobanks have made this a priority and offer some very easy-to-use and flexible tools to help you work with your financial data.
- Speed and convenience: Neobanks are all about giving you up-to-date information about your money. When you make a transaction, it’ll appear instantly, and many of them offer tools to send and receive money more quickly than traditional banks allow.
- Niche marketing: Neo-banks aren’t trying to reach everyone. Most of them are crafting their products specifically for people who fit into certain needs categories. Some offer excellent currency exchange options for frequent travelers, some offer cryptocurrency integration, some offer cash-back or rewards for certain purchases. New neobanks are popping up all the time to serve different types of people.
What you might miss
- Sometimes it’s nice to be able to walk into a real bank (or even check your account from a browser) when you have a problem with your phone or you need a higher level of service.
- If you’re looking for banks with a wide range of checking, savings, loan, and credit options, a neobank isn’t for you. One of their best features is also one of their worst – they’re simple.
- Interest rates? Not at neobanks. You won’t pay much in fees, but if you’re used to getting a few percent back on checking, look elsewhere.
Neobanks: probably worth a shot
The nice thing about neobanks, though, is that they’re quick to open, and you don’t really have much to lose by giving them a try. They’re usually very quick and easy to sign up for and use, and if you find it’s not for you, you have a lot of other options to choose from. Banks like Simple, Chime, Revolut, N26, and many more all offer different options for smartphone-based financial management. As always, be careful what you do with your money and even with a neobank, do your research and read the fine print. This article is not financial advice.