Neobanks are financial technology firms that offer internet-only financial services and lack physical branches.
This broad category of financial services providers appeals to information-hungry consumers who are comfortable with technology.
By JUSTIN PRITCHARD for The Balance
Neobanks can also bring down banking costs and expand services to the underbanked. Understand how neobanks work and what they offer to determine whether they’re right for your needs.
The term neobank is fluid, but there are several ways to understand these banks that challenge the norms of traditional retail banks.
- Aren’t chartered with state or federal regulators as banks
- Provide a streamlined process designed mainly for mobile devices
- Partner with traditional banks to federally insure customer deposits
- Don’t extend credit (such as overdrafts)21
From a customer’s perspective, a neobank might amount to nothing more than an app you use to manage your money and make decisions. They’re typically easy to work with—you can often establish a relationship with a neobank and start using its services without signing any physical paperwork.
Neobank Products and Services
Neobanks offerings are similar, albeit more limited, than those at traditional banks and credit unions. They generally include:
- Checking and savings accounts
- Payment and money transfer services
- Other services, including budgeting help1
While most neobanks offer limited or no credit offerings to limit their risk (you’ll usually have to do without overdraft protection), some offer loans for individuals and businesses through partner banks and credit unions. Others like SoFi were lenders before they offered neobank features, and have the ability to originate loans and deposit accounts.
