August 25, 2022
All-digital neobanks bring lower fees, higher interest rates on deposits and unique features to clients. Learn what sets neobanks and traditional banks apart from each other, as well as what they may have in common.
A neobank is an all-digital fintech that lets consumers access deposit accounts and other banking services through a mobile app or desktop computer. Many neobanks aren’t chartered with state or federal regulators as banks - instead, many partner with more established banks that have received their charter. In addition, because of their digital focus, many neobanks provide superior online experiences compared to traditional banks, which often deal with digitizing their chunky legacy systems. As a result, neobanks are well-suited for younger or tech-savvy consumers who are comfortable handling their finances online.
Some of the most popular neobanks in the U.S. include Chime, Current and GoBank.1
A traditional bank is generally a bank with a physical presence in the form of branches and a charter to operate as a bank, with consumer accounts insured for up to $250,000 through the Federal Deposit Insurance Corporation (FDIC). They also offer face-to-face customer service and ATMs under their own name at banking locations. Some of the largest traditional banks include Bank of America, Wells Fargo and Citibank.2
The terms neobank and challenger bank are often used interchangeably, though differences exist. For example, some consider neobanks to be firms that do all their business online, in contrast to challenger banks, which may have some physical locations.
Unlike traditional banks, most neobanks aren’t actually chartered as banks with state or federal regulators. As a result, many neobanks operate by partnering with chartered banks, so the FDIC insures their consumer deposits.
Neobanks can provide clients FDIC-insured accounts if they are either a licensed bank or partner with a licensed bank(s) to offer such accounts. Synapse’s Deposit Hub allows fintechs to offer FDIC-insured deposit accounts through partnerships with licensed banks.
Thanks to their digital operating model, neobanks can often offer higher interest rates on consumer deposits, waive minimum balance requirements and not levy typical bank costs such as overdraft fees, and charges for using ATMs.
Unlike traditional banks, which often appeal to a mass audience of all types of consumers, many neobanks focus on specific groups, including younger consumers, people looking to build their credit.
In addition to deposit accounts, some neobanks offer checking accounts or secured credit cards without the usual credit check to help consumers with poor or little credit boost their credit score.
They do. Consumers of a neobank can’t access a bank branch or in-person customer service as they could at most traditional banks. Also, neobanks often don’t offer access to related banking products such as mortgages and auto loans. To keep pace with neobanks, traditional banks are expanding and adding to their digital offerings, including improved mobile apps.
According to research firm Statista the worldwide market size of neobanks and challenger banks was estimated to be nearly $47 billion in 2021. The sector is expected to grow at an annual rate of 53.4 percent until 2030, reaching a value of $2.05 trillion that year. (Source: Neobanks global market size 2021 | Statista) Still, neobank deposits are a fraction of the $19.2 trillion in total bank deposits in the U.S., as tracked by YCharts.
With that growth, there are signs that consumers are turning to fintechs such as neobanks for more of their everyday banking needs. Thirty-one percent of U.S. consumers named a fintech firm their “primary financial relationship” in 2021, up from only 6% in 2019, according to EY. And slightly more than half (53%) of those consumers have set up direct deposit with a fintech company.
Synapse’s Neobanking Solution provides core banking infrastructure, an embedded compliance framework and a broad set of banking features. Learn how you can start building today.
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Synapse empowers companies of all sizes and industries to become innovative financial partners for their customers. We are the only banking as a service provider that enables builders to launch feature-complete deposit, credit, and crypto products in weeks.
With Synapse’s APIs, companies can design products and services that raise access to financial services for all. We help builders develop and launch custom suites of financial services to embed banking products, issue cards, provide next-generation loans, crypto products, and more quickly, reliably, and securely.
Synapse Financial Technologies, Inc. is not a Bank. Deposit, Banking, and Card services are provided by Synapse Financial Technologies, Inc.’s partner banks, Members FDIC. Credit services are provided by Synapse Credit LLC, a licensed U.S. lender in designated States. Global cash management services are provided by Synapse Brokerage LLC, a registered broker-dealer and member of FINRA and SIPC. Crypto services are provided by Wyre Payments, Inc., a US Money Service Business. Synapse Brokerage LLC does not offer crypto services, and no cryptocurrencies may be held in any account established through Synapse Brokerage, LLC. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC.
Copyright Synapse Financial Technology, Inc. 2022 synapsefi.com
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1Chime® is the registered trademark of Chime Financial, Inc. Current® is the registered trademark of Finco Services, Inc. GoBank® is a registered trademark of Green Dot Corporation. Synapse Financial Technologies, Inc. is not associated with, sponsored by or in any way affiliated with the respective owners of these marks.
2Bank of America® is the registered trademark of Bank of America Corporation. Wells Fargo® is the registered trademark of Wells Fargo & Company. Citibank® is a registered trademark of Citigroup Inc. Synapse Financial Technologies, Inc. is not associated with, sponsored by or in any way affiliated with the respective owners of these marks.
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