A neobank is a type of

direct bank A direct bank (sometimes called a branch-less bank or virtual bank) is a bank that offers its services only via the Internet, mobile app, email, and other electronic means, often including telephone, online chat, and mobile check deposit. A direct ...

that operates exclusively using

online banking Online banking, also known as internet banking, virtual banking, web banking or home banking, is a system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institut ...

without traditional physical

branch A branch, also called a ramus in botany, is a stem that grows off from another stem, or when structures like veins in leaves are divided into smaller veins. History and etymology In Old English, there are numerous words for branch, includ ...

es. They challenge traditional banks. In contrast to direct banks, in many cases, neobanks do not have their own

banking license In most legal jurisdictions, a financial institution is required to obtain a banking licence before it is legally permitted to carry on a banking business. Besides other requirements, such a business is not permitted to contain in its name words ...

s, and instead rely on partner banks. They typically have lower operational costs, which can sometimes result in lower fees and more competitive

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

Europe

The term "neobank" gained popularity in 2019, but term’s origins are older. The term is used to describe fintech-based financial providers that were challenging traditional

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

s. There were two main types of company that provided services digitally: companies that applied for their own

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 Challenger banks are small, recently created retail banks that compete directly with the longer-established banks in the UK, sometimes by specialising in areas underserved by the "big four" banks (Barclays, HSBC, Lloyds Banking Group, and NatWe ...

" is used in the UK to refer to

fintech Financial technology (abbreviated as fintech) refers to the application of innovative technologies to products and services in the financial industry. This broad term encompasses a wide array of technological advancements in financial services, ...

banking startups that emerged after the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

. Their services may be accessed by clients through their respective

computer A computer is a machine that can be Computer programming, programmed to automatically Execution (computing), carry out sequences of arithmetic or logical operations (''computation''). Modern digital electronic computers can perform generic set ...

s or

mobile device A mobile device or handheld device is a computer small enough to hold and operate in hand. Mobile devices are typically battery-powered and possess a flat-panel display and one or more built-in input devices, such as a touchscreen or keypad. ...

Oceania

Australia

Neobanks are operational in

Australia Australia, officially the Commonwealth of Australia, is a country comprising mainland Australia, the mainland of the Australia (continent), Australian continent, the island of Tasmania and list of islands of Australia, numerous smaller isl ...

and include banks such as Up, Judo Bank, and Alex Bank.

Asia

Bangladesh

The concept of neobanks was first noted in

Bangladesh Bangladesh, officially the People's Republic of Bangladesh, is a country in South Asia. It is the List of countries and dependencies by population, eighth-most populous country in the world and among the List of countries and dependencies by ...

around 2020. These banks would be digital only with customer accounts not connected to any particular branch.

India

India India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...

, a neobank is a class of digital-only or online bank that operates without physical branch locations. 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 account A savings account is a bank account at a retail banking, retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditi ...

s, current accounts,

debit Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a cred ...

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 Millennials, also known as Generation Y or Gen Y, are the demographic cohort following Generation X and preceding Generation Z. Researchers and popular media use the early 1980s as starting birth years and the mid-1990s to early 2000s a ...

, and offer features like budgeting tools and investment options to that demographic. Indian neobanks primarily operate in

Indian rupees The Indian rupee (Currency symbol, symbol: Indian rupee sign, ₹; ISO 4217, code: INR) is the official currency of India. The rupee is subdivided into 100 ''Indian paisa, paise'' (Hindi plural; singular: ''paisa''). The issuance of the currenc ...

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.

Iran

Neobanks in

Iran Iran, officially the Islamic Republic of Iran (IRI) and also known as Persia, is a country in West Asia. It borders Iraq to the west, Turkey, Azerbaijan, and Armenia to the northwest, the Caspian Sea to the north, Turkmenistan to the nort ...

are legally digital branches of banks.

Central Bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

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

Financial crime

Report from

Swedish police The Swedish Police Authority () is the national police, police force (''Polisen'') of Sweden. The first modern police force in Sweden was established in the mid-19th century, and the police remained in effect under Municipalities of Sweden, local ...

indicates that neobanks are popular with criminals and are frequently used in criminal transactions.

References

{{finance-stub Banking terms