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How Neobanks Are Disrupting the Industry

As more businesses embrace technology and become technologically literate, more are leveraging digital platforms. These platforms are designed to help businesses automate and streamline tedious yet business-critical responsibilities like budgeting and finance management.

The option to conduct financial transactions online is particularly helpful for small businesses that want to allocate their time and resources elsewhere but understand the importance and value of managing their business finances. The good news is that many technological finance revolutions have entered the market to provide paradigm-changing solutions. 

One of the latest technological disruptions in the banking sector are neobanks, which exclusively operate online. The industry is rapidly growing, and research predicts that the sector’s global market size is expected to grow at an annual average rate (CAGR) of 53.4 percent until 2030, reaching a value of $2.05 trillion that year.

This alternative to traditional banking allows business owners to complete their financial transactions digitally without requiring a trip to a brick-and-mortar branch. If you’re a small business owner contemplating the big switch from traditional banking to digital banking, learn more about neobanks and their role in the financial industry.

What Is a Neobank?

A neobank, also referred to as a digital or challenger bank, is a digitally enabled banking platform provider that operates exclusively online without traditional physical branch networks. This fintech service aims to provide enhanced user experience, easy accessibility, and low-to-no-fee services.

Neobanks are reconstructing the practices and operations associated with traditional banking, which has earned them the cheeky title of challenger banks. Quite literally, they are challenging the way conventional banks serve their customers.

Neobanks leverage technology, such as artificial intelligence (AI), automation, and cloud computing, to provide similar services to traditional brick-and-mortar banks.

How Does Neobanks Work?

Neobanks primarily operate through mobile applications or online platforms. They offer a fully digital platform for users to conduct financial transactions online without the requirement to visit a physical branch. Neobanks typically leverage the mobile-first model to differentiate themselves by introducing innovative products and providing excellent customer service.

When looking for the best neo bank for your business needs, look for a platform like Relay Financial that gives you visibility into your cash flow and understands what you’re earning, spending, and saving. 

It is important to note that most neobanks are not technically banks; their focus is more on finance and money management as it pertains to banking, and they offer much more than just banking services.

Some neobanks partner with traditional banks with pre-existing banking infrastructure to offer an extra layer of frontend, digital service. Often, neobanks are categorized as full-stacked or front-end-focused.

Many neobanks offer a free debit card that users can manage directly from the mobile app and support international payments with current exchange rates without additional charges. Neobanks generate revenue from interchange – the fees merchants pay customers to make purchases with their debit cards.

The Impact of Neobanks on the Industry

The rising demand for neobanks is revolutionizing the financial industry and defining the potential future for banking. Traditional banks are beginning to respond to this demand by launching their own greenfield digital banks or investing in FinTech to improve customer experience. However, since neobanks don’t have physical locations, they can keep their maintenance costs low, allowing them to charge lower fees for their service.

The ability to offer lower prices gives neobanks a significant advantage over traditional banks, enabling neobanks to attract new customers.

Benefits of Neobanks

Neobanks aim to fill a gap that traditional banks struggle with, allowing them to offer a range of benefits to their customers.

1. Low Fees & Minimum Balances

Since neobanks don’t have physical branches to maintain, they operate digitally, which incurs lower maintenance costs. This allows neobanks to offer their customers low fees with no minimum balance requirements.

2. Multiple Checking Accounts

Neobanks offer multiple chequing accounts to their customers at no fees, allowing users to distribute money into different accounts. This is particularly helpful for small businesses that want to set a budget or goal and keep track of their spending.

3. Convenient to Use

Using a neobank is particularly convenient as you can access the platform’s services 24/7 online or through a mobile app. Innovative technology simplifies the banking process, allowing you to perform valuable transactions with the tip of your fingers at any time. A 2022 survey shows that 24 percent of respondents prefer digital-only banks for convenience.

4. Saves Time Visiting the Bank

One of the most incredible benefits of neobanks is that most of them operate 100% digitally, saving you the hassle of visiting a brick-and-mortar institution when you need to conduct a financial transaction. Most neobanks offer dynamic customer support, allowing you to seek assistance online, and eliminating the need to visit a physical branch.

5. Better Customer Service

Customers want a seamless banking experience, which includes prompt responses from customer service teams. Most neobanks have a strong customer service team, allowing them to provide support whenever you need it. Better customer support allows customers to feel connected, valued, and secure when seeking support.

6. Quick Account Setup

Neobanks are typically operated by tech-savvy institutions that allow customers to set up accounts or process requests promptly. Most neobanks offer the convenience of quickly setting up your account in the comfort of your home or office. They may also use creative ways to analyze your credit and reduce the time spent on lengthy loan application processes.

Switching to a Neobank

Since their inception, neobanks have been challenging the old business model through feature-rich products and services, low cost, ease of use, and seamless online customer experience. If you’re thinking about switching to a neobank, consider these helpful tips to simplify the process.

1. Compare Different Neobanks

Due to the rising popularity of neobanks, many options are available to customers today. According to statistics, North America is home to 64 challenger banks as of July 2022.

Take your time to compare a few neobanks and consider what each platform offers. This will help you choose the neobank that best suits your needs, which is especially beneficial for small businesses.

2. Download the App

Once you’ve selected a neobank, download their app and familiarize yourself with their services. One significant benefit of neobanks is that they are typically easy to navigate and simple to set up.  

3. Choose Software to Integrate

An efficient neobank will have the option to integrate the neobank with your favorite software. Some useful accounting software you could integrate is QuickBooks Online and Xero. This will simplify business operations and make it easier for you to control your finances.

4. Enjoy the Features

Once you have set everything up, you can start using your neobank and enjoy its dynamic features!

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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