What are neobanks?

what is a neo bank

Neobank has been a buzzword for a while, especially in the financial and fintech industry. But what is a neobank, exactly? Well, if you google “neobanks” you can find some slightly different definitions of this term.

A neobank is a completely digital bank with a service model based on internet platforms and mobile apps. Generally speaking, a neobank has no branches. It offers digital financial solutions: payments, money transfers, lending and investments are the most common.

Are neobanks regulated?

Well, yes. Neobanks are authorised and regulated players.

A very strict definition of neobanks includes only players working under a payment institution or e-money licence.

Many successful neobanks have applied for a full banking licence with their regulatory authorities. These neobanks are often called “challenger banks” to distinguish them from “payment institution licensed” neobanks.

Some other neobanks don’t have a bank license of their own, but they created a partnership with a third player (a bank or a Banking as a Service provider) so they can use its bank licensed services.

The fourth kind of neobanks are digital initiatives founded by incumbent banking players. These neobanks can rely on the bank license of the parent company to provide financial services to their customers but usually use a completely different, natively digital IT infrastructure.