Over the past few years, and now at an accelerating rate, we are seeing adoption of so called “neobanking” products amongst our customer base.
What are NeoBanks?
In simple terms, NeoBanks are companies that behave more or less as a bank does, providing payment services, and other financial services, while avoiding some of the key trappings of a typical bank, such as physical branches or infrastructure, lending and credit facilities, and other more expensive and capital intensive activities.
Though NeoBanks are increasingly coming to resemble traditional banks in the scope of their offerings, they exist in addition to a traditional bank, meaning that it isn’t typically possible to do all of your banking with a NeoBank
Some examples of popular NeoBanks in Europe are: Revolut, N26, PayPal, Wise, and others.
Why use a NeoBank?
NeoBanks, unlike core banks, typically behave more as a kind of service provider on top of core banking services. Until recently, many of these NeoBanks were not licensed banking institutions, and so could not offer important features like deposit insurance. This is changing however, as NeoBanks increasingly challenge traditional banks for their core businesses.
Today NeoBanks such as Revolut are becoming licensed to behave more like banks, including insuring their deposits against theft or losses, and potentially allowing customers to ditch their core banks entirely.
A NeoBank is most often useful when you need to avoid the relatively high fees that traditional banks charge for certain services, such as ATM withdrawals, interstate or international wires, and small currency exchanges. Many neobanks offer these services at a very low rate, or even for free as part of a premium subscription service.
Some NeoBanks also use their talents at UX/UI design too provide additional services your typical bank does not, such as travel or device insurance, online fraud protection, and other specialized services for frequent travels, like car rental coverage and airline lounge access. These are usually 3rd party services which the neobanks resell to customers.
Feedback from Wallet users who use one or more neobanking products tells us that their most popular features are seamless person-to-person payments, cost control features, free currency exchanges, and unlimited ATM withdrawals.
What the NeoBanks Don’t Do
NeoBanks typically operate as something closer to “payment services” companies than banks, meaning that many services that banks are able to offer aren’t available through them. This is especially true when it comes to things like credit cards, home loans, auto-financing, and other large consumer loan services.
Typically core banks can offer these services because they have access to something called “repo lending.” Repo lending allows traditional banks to borrow very large sums of money at very low interest rates from central banks. This allows a central bank to control the amount of money in circulation, and in turn to control inflation when necessary, by either raising or lowering the “repo rate,” or the amount of money it costs banks to hold large amounts of cash.
When central banks want lending to increase, they can lower the costs to the banks. When they want it to decrease, they can make this lending more expensive. It is this large base of cash which normally allows large banks to operate safely, without fear of suddenly running out of liquidity.
While this situation is changing in some markets, neobanks seem to be more interested in increasing the number of active users in their platforms in order to offer value to their customers via the benefits of scale: making person to person payments and other additional over-the-top services more widely available and flexible.
Why Combine NeoBanking with Wallet?
In a way, Wallet was made exactly for the kind of customer who is attracted to the Neobanking experience. This is why BudgetBakers now offers an enhanced integration experience to many major neobanking companies, because we know that while anyone who has a NeoBank as part of their daily finances also uses traditional banking services, the fact is that neobanking apps make your daily spending easier to track, control, and categorize.
Wallet is ideally placed to fill the gap between what goes on with your Neobanking apps, and what is going on with your traditional bank accounts. Understanding your entire financial situation is something neither traditional banks, nor NeoBanks can offer reliably.
While both the Neobanks and your traditional bank may be trying to offer budgeting and cash flow tools, the fact is that they aren’t able to really communicate with each other. Since Neobanks compete with each other and with traditional banks, they are reluctant to allow customers to share their financial data between institutions.
Wallet, sitting in the middle of all your finances, can see the full picture and keep you up to speed on your total cash flow, no matter which services you use, or in what combination.