While US neobanks are growing and gaining market share, they have faced challenges in regulatory compliance, profitability, and operational efficiency. Here’s what marketers need to know.
What is a neobank?
Neobanks aren’t burdened by and costly physical branches. Their banking services are conducted online via desktop or mobile app. There are two types: a full-stack neobank or a front-end-focused neobank.
A full-stack neobank (like Varo) is a standalone bank with its own banking license and can operate independently. A front-end-focused neobank (like Chime) lacks a banking license and must partner with a traditional bank to provide services.
Benefits of neobanks
The top three factors for US checking account users choosing their most recent account were fees, mobile banking, and online banking capabilities, according to ĢAV’s . Neobanks provide digital-first services and:
- Easy access: Neobanks are fully digital, accessible to customers anytime, anywhere. Account opening can be easier and quicker as some neobanks don’t check banking histories.
- Lower fees and rates: Since neobanks don’t have to maintain physical branches, they can offer But there could be other fees requiring a certain number of transactions per month to get the best interest rates.
Examples of neobanks
These are the , by market account holders, according to ĢAV’s forecasts for 2024:
- Chime (14.4 million)
- Varo (3.9 million)
- Aspiration (3.7 million)
- Current (3.5 million)
These are the , by account holders, according to ĢAV’s forecasts for 2024:
- Monzo (4.7 million)
- Revolut (4.5 million)
- Starling (2.6 million)
- Monese (1.8 million)
What to know about neobanks
In 2024, there will be 17.5 million , representing 6.6% of the population. As funding dries up, neobanks will need and tighter risk management to attract more profitable customers. They’ll also need to and
How are neobanks different from traditional banks?
The main difference between neobanks and traditional banks is that neobanks are entirely digital without physical branches—they’re accessed via a computer, tablet, or smartphone. To remain competitive, digital offerings.
Consumer frustration with legacy banking and increased demand for digital solutions have accelerated the . Increased with financial service mobile apps is stimulating competition, driving neobanks to roll out features like overdraft protection and sign-up incentives.
What are the regulations around neobanking?
Neobanks are categorized as financial institutions instead of banks, so they don’t follow the same . For example, neobanks don’t need a bank license under federal or state regulations. However, to ensure the Federal Deposit Insurance Corporation (FDIC) insures deposits, they usually partner with a regulated financial institution.
What does the future of neobanks look like?
The number of US neobank account holders will grow slowly over the next few years as they , low to no fees, and innovative products.
ĢAV predicts an increase in neobank mergers, acquisitions, and bankruptcies, but a few will emerge stronger.
As the number of neobanks dwindles, those remaining must establish a market foothold by meeting customers’ needs and earning their trust. To carve out a leadership position, neobanks should , including incumbent banks, new entrants, and Big Tech firms.
