Banking options continue to expand. Neobanks refer to financial services providers that appeal to information-hungry consumers comfortable with technology. Many are FinTech start-ups that offer checking and savings accounts, debit cards, loans, and budgeting guidance through digital channels and mobile apps.
Neobanks typically do not have physical bank locations, although some partner with existing banks or credit unions. Some consider PayPal an early neobank example as a result of being linked to bank accounts and payment cards. More recent examples of neobanks include GoBank (a brand of Green Dot Bank), SoFi Money, Varo Money, Wells Fargo’s Greenhouse, and Chase’s Finn.
Commonly viewed benefits of neobanks are:
- lower costs than most traditional financial institutions; access to large ATM networks with no fees.
- attractive to underbanked and unbanked consumers who use prepaid cards, check-cashing services, and consumer credit companies.
- clear communication of fees and charges; usually no overdraft penalties since you can only spend what is in your account,
- enhanced technology for basic banking activities as well as algorithms for budgeting, money management, and wise spending.
- ease of loan approval with technology-based methods for obtaining credit, along with access to loans by smaller enterprises.
Some concerns associated with neobanks include:
- a lack of physical bank branches.
- may not be chartered as financial institutions with government regulators, also lacking deposit insurance.
- no recourse may be available when malfunctions occur with an app or mobile connection.
- not appropriate for individuals who make cash payments and deposits.
As banking alternatives evolve, neobanks will likely become more numerous expanding into new products and services. At the same time, traditional financial institutions will seek ways to offer FinTech products to serve an expanding technology-oriented customer segment.
For additional information on neobanks:
- Have students propose services that might be offered by neobanks to enhance financial literacy and improve money management skills.
- Have students create a video or in-class presentation that communicates the positive and negative aspects of neobanks.
- What actions would you recommend to others before using a neobank?
- Describe possible actions that might be taken by traditional financial institutions to counter the potential loss of customers to neobanks.