Fintech innovations gave rise to neobanks that can render faster and more accurate financial services without the need to have a physical location like traditional banks. The concept and operations of neobanks first originated in Germany and the United Kingdom; providing mobile-first, digital financial services such as facilitating online payments, money transfers and loans, just to mention a few.
Operating entirely on digital technology supported by mobile phone applications, neobanks manage end-to-end client servicing and customer acquisition. A banking partner keeps and safeguards the funds of neobank customers, while also giving access to funds that the digital banks can offer as loans to clients.
Pros and Cons of Banking with Tech-Based Neobanks
While many regard neobanks as better than conventional banks, there are also concerns and constraints faced by neobank users.
As an innovative banking solution, neobanks’ automated services allow smoother and faster response time in the processing of financial transactions. At the same time, through the User Interface (UI) it eliminates the costs of having to personally and physically visit a traditional brick and mortar bank. Still, the downside of choosing to use neobanks to handle one’s financial transactions is the absence of a regulatory banking licence that ensures consumer protection. At the same time, arranging and processing financial transactions entirely online pose risks of encountering cyber attacks and vulnerability to system malfunctions.