What is it and how it could save you money
Should neobanking be the primary way to manage your money in the future? Here’s what you need to know.
When you think of banking, you probably think of a physical location with a friendly teller, ATM, and staff. But as technology has evolved, so has the way we manage our money.
If you’re still using a bank with a physical location, there’s probably a corresponding app that lets you make digital deposits and transfers, meaning you’re already visiting the bank less than you might already have. made.
Neobanking goes even further in virtual banking by offering the same financial products such as checking accounts and savings accounts as a traditional bank, but without a window.
Here’s what you need to know about neobanking: what it is, how it differs from traditional banking models, and how it can save you money.
What is a neobank?
“Neobank is a banking service provided by a tech company through an app or website instead of a traditional financial institution,” says Phil Strazzulla, Founder and CEO of selectsoftwarereviews.com. “Many neobanks often partner with traditionally FDIC-insured banks, but generally offer a more socially connected customer service and banking experience. ”
All of your banking needs are accessible and processed virtually through the app, eliminating the need to visit a physical banking location. And because the FDIC-insured banks back them up, you can rest assured that your money is safe.
When did the neobank become popular?
Neobanks, known as “challenger banks” in the UK, started to gain popularity after the financial crisis of 2007-2009. According to a recent study, neobanks received nearly 3.6 billion venture capital funds in 2020. Additionally, it is estimated that by 2024, neobanks will have more than 145 million clients in the United States and Europe.
According to Strazzulla, you are probably familiar with at least one of the early models of neobank: Paypal. “PayPal was never intended to be a real bank, but rather a way for people to engage with their finances in a more technical way,” he says.
What are the advantages of the neobank?
Because neobanks are not tied to physical locations, they can provide benefits that traditional model banks cannot. “[Neobanks] tend to have lower fees, great application interfaces, and provide social banking services much more easily than even online banks, ”says Strazzulla.
Many neobanks also offer specific benefits aimed at helping a younger user base manage their finances. “For example, Dave, one of the newer neobanks, has credit creation features, while Chime has a ‘spot me’ feature that makes it easy to send $ 5 to another Chime user,” explains Strazzulla. “Tools like these aren’t just designed to help young consumers build their financial capital; it helps gamify finances.
Neobank applications also offer a better user experience than mobile banking platforms. “One of the most important characteristics of neobanks is their presence in the app,” says Strazzulla. “In general, they’re more feature-rich and more modern than those in traditional banks, making it easy for users to check their accounts, pay with their phones, and even share money with their friends. These apps are designed to be easy and fun to use, without the pages of disclosure documents or the fuss that a traditional banking app has.
Can neobanks save you money?
Compared to a traditional bank, the short answer is yes. “Most neobanks have low or no charge deals, which means you don’t have to worry about overdrafts,” says Strazzulla. “They can also help customers create credit so they can get better interest rates on loans.”
However, using a neobank versus a traditional banking model has some drawbacks. “Most neobanks don’t have interest-bearing accounts like CDs,” says Strazzulla. “They don’t usually have credit bureaus either, which means you can’t get a low-interest loan to combine with your account.”
How to get started with the neobank
Ready to get started in the neobank? Before you do, Strazzulla says it’s important to know that not all neobanks are created equal. “If you want to open a neobank account, the important thing is to consult the opinions on the most popular options,” he says.
One of the most popular (and oldest) options is Carillon, a neobank with more than 12 million users. This neobank offers early access to direct deposit payments and offers a competitive savings feature (APY). It also waives the typical fees associated with a traditional bank, which saves money.
As Strazzula notes, choosing a proven neobank is more likely a safe bet. “A lot of these companies have great selling points, but they can be risky,” Strazzulla warns. “It seems that a new neobank arises every few months. Make sure you do your research before signing up.