We are going to explain what neobanks are, what are their main advantages and the disadvantages that these alternatives can pose to traditional banks. In recent years these types of projects have emerged, as an alternative to the banking models that we have been using for so long.
Currently there are proposals such as Revolut, N26 or Bnext, among many others, trying to provide alternatives to the traditional banking model. Competitive prices, almost zero commissions and attractive advantages abroad, is all that glitters with neobanks gold?
What are neobanks
Neo banks are 100% digital entities that offer financial services. They operate on-line and absolutely all the procedures are carried out either from the mobile application or from its website. In general, usually offer a bank account and a card, with various possibilities according to the modalities we choose (free and paid). According to a study by The State of European Fintech, in 2019 neobanks achieved investments of more than 2,400 million euros.
With neobanks the experience is 100% digital, there are no physical intermediaries or bank branches
With the neobanks the experience is 100% digital. You do not have to go to bank branches, you do not have to queue and there is no personal treatment: everything is done online, with its pros and cons.
A neobank is not always a financial institution. There are some that are, like N26, but there are also those that do not have a banking license and that operate electronic money entities (EDEs) or simply like apps like Bnext, which do not pretend to be a bank, but rather offer similar services to those that they offer.
The key point is that for all procedures are carried out online, so we save both intermediaries and stepping on bank branches, among others.
The advantages of neobanks
First of all, the process of opening an account in a neobank is much easier than in a traditional bank. The process will depend on each application and service, but generally you only need your ID and five minutes. After validating your information online, you will have access to a new fully functional bank account. You don’t even need a physical card, since you can operate from your mobile directly (Although this card will arrive at your home in a few days).
Travel and be able to pay without commissions, with the best possible change: neobanks want to attract young audiences by facilitating their use when we are outside of our country
Another of the main points offered by proposals such as Revolut, N26, Monese or Bnext is that we can withdraw money at ATMs around the world without commissions, as well as making automatic payments at the best exchange rate (this is key when traveling, since we completely ignore the currency). In traditional banking, the issue of commissions when paying in other countries can be a real nuisance, one of the points in which you are Fintech they are fighting to win.
Depending on the neobank we choose and the bank to which it is associated, We will have a card (VISA or Mastercard) with a Spanish IBAN or from another country. This point is important since, choosing the neobank well, we will have an account abroad without having set foot in that country.
The absence of maintenance costs is another key point. These neobanks will not ask you for payroll, fixed income or high annual fees to keep accounts open. Unless we have a payment plan with more services, having an account in a neobank comes out at practically zero cost. There are also no permanence commitments, nor specific requirements to open the accounts.
Ultimately, the key point of neobanks is the online experience they offer. They are designed mainly for the young public, very used to online procedures and who flee from solving problems by going to offices. While these points are attractive, there are several trade-offs.
Disadvantages of neobanks
The first problem that we will find with neobanks is given by their very nature: since everything is 100% online, we will not be able to solve any problem in a branch with a natural person. Customer service will depend on the bank, but in some we are only served in English through a chat, so communication can be slow and tedious.
Second, as they are designed to operate 100% online, ATM withdrawal maximums are usually very low. In general, after taking a few euros from the ATM, we will begin to charge commissions, since they are designed for us to buy with the physical card or with the virtual phone card.
With a neobank we cannot ask for personal credit, apply for a mortgage or obtain benefits for having a good credit history
We also give up some services such as Bizum, which it is not yet compatible with a good part of the neobanks, or with being able to configure Revolut accounts and other neobanks in services such as Coinbase or Degiro, important services to manage our investments.
Finally, note that there is a smaller offer of products such as credits, whether personal, mortgage and others, or other advantages associated with the customer’s credit history.
Neobanks: technology at the service of finance, but not for everything
In short, neobanks were born as alternatives to traditional banks, focused on a young audience and with 100% online management. They are excellent alternatives such as expense accounts, travel and even as prepaid cards with which to better manage our economy.
However, if we want to handle cash, we believe that we may need a loan with certain advantages associated with our history or be backed by a customer service in Spain and with a physical branch, they may not be for us or, simply, be a complement to a main account in a traditional bank.