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What Is a Neobank?

Woman using a tablet to transact with her neobank.

Neobank is becoming a more common term, as this type of financial institution becomes more widespread. Here we explain what neobanks are and how they differ from traditional banks.

Neobank definition

Neobanks offer all or most of the services that traditional banks but they provide them through apps and computer platforms. Instead of investing in branches, neo-banks are driven by technology. Just like traditional banks, neobanks offer the common banking services that the big banks offer such as savings accounts, transactions accounts, debit cards, credit cards and other financial services.

The big difference is in how these services are delivered using innovative technology. These include apps that help with money management, budgeting, saving, personal accounting and planning. Another big difference between neobanks and traditional banks is that neobanks have a customer-centric approach with the goal of creating a simple and enjoyable customer experience.

As Australian deposit-taking institutions (ADIs), neo-banks need a banking licence and are regulated by the Australian Prudential Regulation Authority (APRA). Since many are in competition with existing banks, they are often called challenger banks. Some are connected with existing banks and operate under the existing licence. One example is Up Bank

ING, which offers personal and business banking online, is an example of a digital bank. ING is part of a large international banking group. It has no branches and has offered digital bank accounts and other solutions in Australia for a number of years. Since this bank is attached to a large financial institution, it’s not classified as neobank but as a digital bank. Another thing that sets neobanks apart is that they don’t have the legacy systems the traditional financial institutions have.

What is the status of these new banks in Australia?

So far in Australia, only a handful of neobanks are operating. A few others, such as Volt bank, have been licensed by APRA and soon will be launching in Australia. This niche is set to grow with more of these banks in the planning stages.

How do neobanks and fintechs differ?

Neobanks can be classified as fintechs because they use technology to offer digital banking. However, ‘fintech’ applies to a wide range of businesses that leverage technology to deliver financial services. Most fintechs deliver their services in narrow niches, such as small business lending, payments, investments and wealth creation. Moula, for example, focuses on unsecured small business loans ranging from $5,000 to $250,000. In addition, most fintechs in Australia are not ADIs, so the don’t need to have a banking licence under APRA.

What does the future hold for neobanks?

There was a time when banking meant visiting a branch and dealing with a teller. All this started to change. The first ATMs in Australia were introduced in 1969. Later, the rise of the internet made it easy to pay and receive funds online. As people want more control of their finances, these new challenger banks offer enticing opportunities. 

At the same time, financial institutions developing technological platforms and solutions are better placed to serve the changing needs of the market. In July 2019, Deutsche Bank announced that it was cutting 18,000 jobs to focus on fintech. In a ComputerWeekly article, one author claimed that this move was a major landmark for fintech and showed that it is eroding the traditional power of big banks.


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