Neobank

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A neobank is a type of direct bank that operates exclusively using online banking without traditional physical branches. In contrast to direct banks, in many cases, neobanks do not have their own banking licenses, and instead rely on partner banks. [1] [2] [3] They typically have lower operational costs, which can sometimes result in lower fees and more competitive interest rates.

Contents

History

Origins

The concept of branch-free, digital-first banking traces back to telephone-only and internet-only banks of the late 1990s and early 2000s (for example, ING Direct in the Netherlands/UK), which already emphasised low cost and online customer onboarding. [4] Following the global financial crisis of 2008, consumer trust in established banking institutions declined significantly, creating an opening for new digital-first entrants. [2] Between about 2010 and 2015, a number of fintech firms began offering banking-like services via apps; the term "neobank" began gaining traction from around 2017 onward. [5]

Growth

From the mid-2010s onward, especially in Europe and then globally, a number of dedicated digital banks emerged (for example, Monzo Bank in the UK, Revolut, Nubank in Latin America), expanding rapidly in customers, product breadth, and geographic footprint. [6] By the early 2020s, the neobank model had become mainstream enough to attract attention from regulators, incumbents, and investors alike, with scrutiny around profitability, regulation, and sustainability. [7]

Business model and key features

Neobanks typically share features like:

Industry players

Growth is driven by mobile adoption, digital expectations, open banking regulation, and rapid scale via technology. [2] Adoption is higher among younger, digitally literate populations and in countries with supportive regulatory frameworks. [7] Profitability pressure, competition, and regulatory headwinds are notable challenges. [12]

Regulation and licensing

License models

Neobanks can follow several regulatory/licensing paths:

Regulatory oversight & consumer protection

Neobanks remain subject to regulatory requirements for deposits, know your customer (KYC), anti-money laundering (AML), and data privacy. [15] Digital models can create new operational and third-party risks. [16]

Challenges and risks

Regional developments

Europe

The term "neobank" gained popularity in 2019, but the term’s origins are older. [17] [1] The term is used to describe fintech-based financial providers that were challenging traditional banks. There were two main types of company that provided services digitally: companies that applied for their own banking license and companies in a relationship with a traditional bank to provide those financial services. The former were called challenger banks and the latter were called neobanks. The term "challenger bank" is used in the UK to refer to fintech banking startups that emerged after the 2008 financial crisis. Their services may be accessed by clients through their respective computers or mobile devices.

Oceania

Australia

Neobanks are operational in Australia and include banks such as Up, Judo Bank, and Alex Bank. [18]

Asia

Bangladesh

The concept of neobanks was first noted in Bangladesh around 2020. [19] [20] These banks would be digital only with customer accounts not connected to any particular branch. [21]

India

In India, a neobank is a class of digital-only or online bank that operates without physical branch locations. [22] Neobanks often partner with well-established, traditional banks to provide services and adhere to regulations.

Neobanks in India typically offer a range of financial services, including savings accounts, current accounts, debit and credit cards, and other banking services. They focus on providing a seamless and user-friendly digital banking experience to a younger audience, with features like instant account setup, easy money transfers, and expense tracking. Some neobanks also target specific customer segments, such as millennials, and offer features like budgeting tools and investment options to that demographic.

Indian neobanks primarily operate in Indian rupees and may have limited cross-border services. International transactions are often handled in partnerships with traditional banks. Federal Bank has partnered with Jupiter and Fi in the neo-banking space. [23]

Iran

Neobanks in Iran are legally digital branches of banks. Central Bank passed a limiting law in 2022 which bans banks from starting mobile "neo" bank apps that have their own core. [24] There are a number of active programs such as Omid Bank, Tobank, Wepod and Zpod Kidzy, [25] Bank Mellat Plus. [26] Iranians need Identity national smart cards and video confirmation to open an account. [27]

Financial crime

Report from Swedish police indicates that neobanks are popular with criminals and are frequently used in criminal transactions. [28] [29]

See also

References

  1. 1 2 Digital Economy Outlook (PDF) (Report). BBVA. January 2016. p. 12. Archived (PDF) from the original on 29 August 2024.
  2. 1 2 3 Ballard, Barclay (October 11, 2018). "The unstoppable rise of neobanks". World Finance . Archived from the original on 29 August 2024. Retrieved 31 December 2018.
  3. ↑ "What is a neobank?". Business Standard . 6 May 2022. Archived from the original on 29 August 2024. Retrieved 14 May 2022.
  4. ↑ "25 Years of ING Direct: A Digital Banking Pioneer". ING. 2025-02-01. Retrieved 2025-10-30.
  5. ↑ "Neobanks: The Fintech Evolution". FinTech Futures. 2023-04-20. Retrieved 2025-10-30.
  6. ↑ "Neobanks are disrupting traditional banking". Forbes. 2019-08-15. Retrieved 2025-10-30.
  7. 1 2 3 "Digital-First Consumers and Regulation Fuel Neobank Growth in 2025". International Banker. 2025-07-07. Retrieved 2025-10-30.
  8. ↑ "The Rise of Neobanks and Cloud-Native Financial Services". TMPrime. 2022-11-01. Retrieved 2025-10-30.
  9. ↑ "Nubank becomes Brazil's largest digital bank". Finextra. 2024-03-05. Retrieved 2025-10-30.
  10. ↑ "Monzo: Expansion and Survival". Wired. 2020-05-21. Retrieved 2025-10-30.
  11. ↑ "About Up". Up Bank. 2024-01-15. Retrieved 2025-10-30.
  12. 1 2 "Neobank Challenges and Profitability". Softjourn. 2024-05-12. Retrieved 2025-10-30.
  13. ↑ "Building a Winning AI Neobank". McKinsey & Company. 2022-11-29. Retrieved 2025-10-30.
  14. ↑ "The Rise of Neobanks and Their Regulatory Implications". Kansas City Federal Reserve. 2020-09-15. Retrieved 2025-10-30.
  15. ↑ "Neobanks and Compliance Risks". Unit21. 2024-04-10. Retrieved 2025-10-30.
  16. ↑ "Digital-Only Banks: Regulatory Considerations". Krause Consulting. 2024-07-22. Retrieved 2025-10-30.
  17. ↑ "Neobankerna är här". KTH Royal Institute of Technology (in Swedish). 2019-09-10. Archived from the original on 2024-06-22. Den som gör en sökning i olika mediedatabaser på ordet neobanker kan notera att de börjar dyka upp runt 2017 i olika tidningar och annan media. Det är emellertid först i år, 2019, som användning av ordet tar fart. Och det på allvar.
  18. ↑ Duncan, Alasdair (21 June 2023). Tovey, Nina (ed.). "Neobanks: what are they and what are your options?". Canstar. Archived from the original on 29 August 2024. Retrieved 29 August 2024.
  19. ↑ "Bank Asia to establish neobank". The Financial Express . 1 September 2020. Archived from the original on 29 August 2024.
  20. ↑ Parvez, Sohel (2023-08-06). "NRB Bank plans to introduce neo-banking services". The Daily Star . Archived from the original on 29 August 2024.
  21. ↑ Hasan, Md Mehedi (2024-01-25). "Bangladesh plans more licences for digital banks in push to go cashless". The Daily Star . Archived from the original on 29 August 2024. Retrieved 2024-03-26.
  22. ↑ Vaidhyanathan, Jaya; Aashika, Jain (31 July 2024). "What Is Neobanking And How Does It Work?". Forbes . Archived from the original on 29 August 2024.
  23. ↑ "Groww in talks with Federal Bank for neo-banking vertical".
  24. ↑ Taati, Mahsa (10 December 2023). "دستورالعمل بانک مرکزی؛ تهدیدی برای نئوبانک‌ها در ایران؟" [Banking experts answered in a conversation with the payment method / instructions of the central bank; A threat to neobanks in Iran?] (in Persian). Archived from the original on 29 August 2024.
  25. ↑ Javednia, Amir (6 May 2024). "ارائه تسهیلات خرد بانکی برای کودکان و نوجوانان در کیدزی" [Providing micro banking facilities for children and teenagers in Kidzi] (in Persian). Archived from the original on 29 August 2024.
  26. ↑ "خط خوردن نئوبانک بازگشت بانک دیجیتالی به متن" [Neobank's line is the return of the digital bank to the text] (in Persian). 8 November 2022. Archived from the original on 29 August 2024.
  27. ↑ "بانکداری الکترونیکی در لباس نئوبانک" [Electronic banking in neobank clothing] (in Persian). 26 May 2021. Archived from the original on 29 August 2024.
  28. ↑ "Neobanker: En rapport om neobanker och deras risker relaterade till penningtvätt och finansiering av terrorism". Archived from the original (PDF) on 2024-04-18. Retrieved 2024-06-22. Neobanker och deras tjänster är dock också attraktiva för kriminella aktörer som utnyttjar dessa kanaler för att tvätta sina svarta pengar eller för att finansiera allvarlig och grov brottslighet, såsom finansiering av terrorism. Underrättelser vittnar om kriminella aktörer som flitiga användare av neobanker. (transl. However, neobanks and their services are also attractive to criminal actors who use these channels to launder their dirty money or to finance serious and serious crime, such as terrorism. Intelligence reports indicate that criminal actors are frequent users of neobanks.)
  29. ↑ "Strong risk of money laundering through neobanks, Swedish report reveals". Global Relay Intelligence. 2024-08-30. Archived from the original on 2025-06-01. Retrieved 2025-06-01.
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