{{short description|Online-only direct bank}} {{More citations needed|date=March 2024}}{{Banking |banks}} A '''neobank''' is a type of [[direct bank]] that operates exclusively using [[online banking]] without traditional physical [[branch (banking)|branch]]es. In contrast to direct banks, in many cases, neobanks do not have their own [[banking license]]s, and instead rely on partner banks.<ref name=":0">{{cite report |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829071332/https://www.bbvaresearch.com/wp-content/uploads/2016/01/DEO_Jan16.pdf |url-status=live |date=January 2016 |title=Digital Economy Outlook |url=https://www.bbvaresearch.com/wp-content/uploads/2016/01/DEO_Jan16.pdf |publisher=[[BBVA]] |page=12}}</ref><ref name="unstoppablerise">{{cite web |title=The unstoppable rise of neobanks |url=https://www.worldfinance.com/banking/the-unstoppable-rise-of-neobanks |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829071554/https://www.worldfinance.com/banking/the-unstoppable-rise-of-neobanks |url-status=live |work=[[World News Media|World Finance]] |first=Barclay |last=Ballard |date=October 11, 2018 |access-date=31 December 2018}}</ref><ref>{{cite news |title=What is a neobank? |url=https://www.business-standard.com/podcast/finance/what-is-a-neobank-122050600048_1.html |access-date=14 May 2022 |archive-date=29 August 2024 |url-status=live |archive-url=https://web.archive.org/web/20240829071706/https://www.business-standard.com/podcast/finance/what-is-a-neobank-122050600048_1.html |work=[[Business Standard]] |date=6 May 2022}}</ref> They typically have lower operational costs, which can sometimes result in lower fees and more competitive [[interest rate]]s.
Neobanks typically share features like: * Digital‑only (or near‑only) operations: mobile apps, web portals; minimal or no physical branches. * Fewer legacy systems, branch overheads and manual processes. * Focus on user onboarding experience, real‑time notifications, simplified user interface, often gamification or budgeting tools. * Partnerships and third‑party infrastructure: many rely on licensed banks (for deposit taking) or [[Banking as a Service]] (BaaS) platforms rather than building full banking back‑end in house.<ref>{{cite web|title=The Rise of Neobanks and Cloud-Native Financial Services |website=TMPrime |date=2022-11-01 |url=https://www.tmprime.com/articles/the-rise-of-neobanks-and-cloud-native-financial-services |access-date=2025-10-30}}</ref> * Monetization strategies such as interchange fees (on debit cards), subscription/premium services, lending or credit, currency services, and embedded finance offerings. * Targeting either under‑served segments (younger users, gig economy, under‑banked countries) or offering alternative value propositions (zero/low fees, global spending, multi‑currency, real‑time analytics).
==Regulation== Neobanks can follow several regulatory/licensing paths: * Full banking license: e.g., [[Starling Bank]] (UK) can take deposits and lend directly.<ref>{{cite web |title=Building a Winning AI Neobank |website=McKinsey & Company |date=2022-11-29 |url=https://www.mckinsey.com/industries/financial-services/our-insights/building-a-winning-ai-neobank |access-date=2025-10-30}}</ref> * Virtual bank / digital bank license: jurisdictions may issue special digital-only licenses. * Partner bank / [[Banking as a service]] model: neobanks often partner with existing licensed banks to avoid the full regulatory burden.<ref>{{cite web |title=The Rise of Neobanks and Their Regulatory Implications |website=Kansas City Federal Reserve |date=2020-09-15 |url=https://www.kansascityfed.org/neobanks/ |access-date=2025-10-30}}</ref>
Neobanks remain subject to regulatory requirements for deposits, [[know your customer]] (KYC), [[anti-money laundering]] (AML), and data privacy.<ref>{{cite web |title=Neobanks and Compliance Risks |website=Unit21 |date=2024-04-10 |url=https://unit21.ai/neobanks-compliance-risks/ |access-date=2025-10-30}}</ref> Digital models can create new operational and third-party risks.<ref>{{cite web |title=Digital-Only Banks: Regulatory Considerations |website=Krause Consulting |date=2024-07-22 |url=https://www.krauseconsulting.com/digital-only-banks-regulation/ |access-date=2025-10-30}}</ref>
Challenges and risks about neobanks include: * Profitability & funding: scale vs revenue concerns.<ref name="NeobankChallenges"></ref> * Competition: from other neobanks and upgraded incumbents. * Regulatory/compliance risk: AML, KYC, data protection. * Customer trust & retention: digital-only perception risk. * Operational/technology risk: cloud, API, third-party vulnerabilities. * Deposit stability & funding risk: reliance on partner banks.
Report from [[Swedish Police Authority|Swedish police]] indicates that neobanks are popular with criminals and are frequently used in criminal transactions.<ref>{{cite web | title=Neobanker: En rapport om neobanker och deras risker relaterade till penningtvätt och finansiering av terrorism | url=https://polisen.se/siteassets/dokument/finanspolisen/rapporter/neobanker.pdf | access-date=2024-06-22| archive-url=https://web.archive.org/web/20240418003201/https://polisen.se/siteassets/dokument/finanspolisen/rapporter/neobanker.pdf/download/ | archive-date=2024-04-18 | url-status=dead | quote=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. ({{translation|i=yes|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.}})}}</ref><ref>{{cite web | title=Strong risk of money laundering through neobanks, Swedish report reveals | website=Global Relay Intelligence | date=2024-08-30 | url=https://www.grip.globalrelay.com/strong-risk-of-money-laundering-through-neobanks-swedish-report-reveals/ | archive-url=https://web.archive.org/web/20250601140822/https://www.grip.globalrelay.com/strong-risk-of-money-laundering-through-neobanks-swedish-report-reveals/ | archive-date=2025-06-01 | url-status=live | access-date=2025-06-01}}</ref>
==History== 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.<ref>{{cite web |title=25 Years of ING Direct: A Digital Banking Pioneer |website=ING |date=2025-02-01 |url=https://www.ing.com/Newsroom/25-years-of-ing-direct.htm |access-date=2025-10-30}}</ref> Following the global financial crisis of 2008, consumer trust in established banking institutions declined significantly, creating an opening for new digital-first entrants.<ref name="unstoppablerise"></ref> 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.<ref>{{cite web |title=Neobanks: The Fintech Evolution |website=FinTech Futures |date=2023-04-20 |url=https://www.fintechfutures.com/2023/04/neobanks-the-fintech-evolution/ |access-date=2025-10-30}}</ref>
Growth in neobanks is driven by mobile adoption, digital expectations, open banking regulation, and rapid scale via technology.<ref name="unstoppablerise"></ref> Adoption is higher among younger, digitally literate populations and in countries with supportive regulatory frameworks.<ref name="DigitalFirstConsumers"></ref> Profitability pressure, competition, and regulatory headwinds are notable challenges.<ref name="NeobankChallenges">{{cite web |title=Neobank Challenges and Profitability |website=Softjourn |date=2024-05-12 |url=https://www.softjourn.com/blog/neobank-challenges-and-profitability/ |access-date=2025-10-30}}</ref>
From the mid-2010s onward, especially in Europe and then globally, a number of dedicated digital banks emerged (for example, Monzo Bank and Revolut in the UK, Nubank in Latin America), expanding rapidly in customers, product breadth, and geographic footprint.<ref>{{cite web |title=Neobanks are disrupting traditional banking |website=Forbes |date=2019-08-15 |url=https://www.forbes.com/sites/forbestechcouncil/2019/08/15/neobanks-are-disrupting-traditional-banking/ |access-date=2025-10-30}}</ref> 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.<ref name="DigitalFirstConsumers">{{cite web |title=Digital-First Consumers and Regulation Fuel Neobank Growth in 2025 |website=International Banker |date=2025-07-07 |url=https://internationalbanker.com/banking/digital-first-consumers-and-regulation-fuel-neobank-growth-in-2025/ |access-date=2025-10-30}}</ref> ==Regional developments== ===Europe=== {{AI-generated|section|date=July 2025}} The development of neobanks in Europe is a trend in the European financial landscape beginning in the 2010s. The term "neobank" gained popularity in 2019, but the term’s origins are older.<ref>{{cite web | url=https://www.kth.se/om/nyheter/centrala-nyheter/neobankerna-ar-har-1.923592 | title=Neobankerna är här | website=[[KTH Royal Institute of Technology]] | date=2019-09-10 | archive-url=https://web.archive.org/web/20240622105220/https://www.kth.se/om/nyheter/centrala-nyheter/neobankerna-ar-har-1.923592 | archive-date=2024-06-22 | url-status=live | language=sv | quote=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.}}</ref><ref name=":0" /> The term is used to describe fintech-based financial providers that were challenging traditional [[bank]]s. 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 [[United Kingdom|UK]] to refer to [[Financial technology|fintech]] banking startups that emerged after the [[2008 financial crisis]]. Their services may be accessed by clients through their respective [[computer]]s or [[mobile device]]s.
The neobank industry in Europe has experienced rapid growth in the 2010s, with several new companies entering the market and attracting millions of customers. Key factors of their growth include: # Technology advancements: The widespread adoption of smartphones and high-speed internet has made it easier for consumers to access banking services through digital channels, paving the way for the rise of neobanks. # Changing consumer preferences: As consumers increasingly demand personalized, user-friendly experiences, neobanks have capitalized on this trend by offering innovative financial products and services tailored to the digital age.{{Citation needed|date=April 2023}} # Supportive regulatory environment: The European Union's Revised Payment Services Directive ([[Payment Services Directive|PSD2]]) has facilitated the entry of non-traditional financial players, such as neobanks, into the market by enabling third-party providers to access customer account data from traditional banks with customer consent. This has allowed neobanks to develop innovative solutions and compete with established banks.<ref>{{Cite web|url=https://mpra.ub.uni-muenchen.de/110763/1/MPRA_paper_110763.pdf|title=Open banking in Europe: The impact of the Revised Payments Services Directive on Solarisbank and Insha}}</ref><ref>{{Cite news |last=Padmanabhan |first=Arun |date=2021-10-07 |title=Explained: Neobanks, the next evolution of banking |work=The Economic Times |url=https://economictimes.indiatimes.com/tech/trendspotting/explained-neobanks-the-next-evolution-of-banking/articleshow/86836735.cms |access-date=2023-04-12 |issn=0013-0389}}</ref>
In 2024, as a part of Instant Payments Regulation, European authorities made a significant step to level the regulatory field for neobanks. Before that, many neobanks who didn't have a bank status (like [[Electronic Money Institution|EMIs]] or other [[Non-bank financial institution|non-bank financial institutions]]) couldn't access central bank-operated payment systems like [[TARGET Services|TARGET]]. TARGET Services are essential to many money-transferring operations. With this new regulation, non-bank payment service providers (PSP) meeting certain requirements can connect to these systems.<ref>{{Cite journal |last=Bank |first=European Central |date=2024-07-19 |title=Eurosystem sets policy on access by non-bank payment service providers to its central bank payment systems |url=https://www.ecb.europa.eu/press/intro/news/html/ecb.mipnews20240719.de.html |language=de}}</ref> The initiative should help neobanks and fintechs to provide instant credit transfers in euros and compete with traditional banks.<ref>{{Cite web |date=2023-11-08 |title=EU agrees game-changing deal for instant payments |url=https://www.finextra.com/newsarticle/43259/eu-agrees-game-changing-deal-for-instant-payments |access-date=2025-07-29 |website=Finextra Research |language=en}}</ref>
=== Oceania === ==== Australia ==== Neobanks are operational in [[Australia]] and include banks such as [[Up (Australian bank)|Up]], [[Judo Bank]], and [[Alex Bank]].<ref>{{cite web |archive-url=https://archive.today/20240829063354/https://www.canstar.com.au/savings-accounts/neobanks/ |archive-date=29 August 2024 |access-date=29 August 2024 |date=21 June 2023 |first=Alasdair |last=Duncan |editor-first=Nina |editor-last=Tovey |title=Neobanks: what are they and what are your options? |work=Canstar |url=https://www.canstar.com.au/savings-accounts/neobanks/ |url-status=live}}</ref>
=== Asia === ==== Bangladesh ==== The concept of neobanks was first noted in [[Bangladesh]] around 2020.<ref>{{Cite news |url=https://thefinancialexpress.com.bd/trade/bank-asia-to-establish-neobank-1598934589 |title=Bank Asia to establish neobank |website=[[The Financial Express (Bangladesh)|The Financial Express]] |date=1 September 2020 |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829070714/https://thefinancialexpress.com.bd/trade/bank-asia-to-establish-neobank-1598934589 |url-status=live}}</ref><ref>{{Cite web |last=Parvez |first=Sohel |url=https://www.thedailystar.net/business/economy/news/nrb-bank-plans-introduce-neo-banking-services-3387401 |date=2023-08-06 |title=NRB Bank plans to introduce neo-banking services | work=[[The Daily Star (Bangladesh)|The Daily Star]] |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829070939/https://www.thedailystar.net/business/economy/news/nrb-bank-plans-introduce-neo-banking-services-3387401 |url-status=live}}</ref> These banks would be digital only with customer accounts not connected to any particular branch.<ref name="Hasan">{{Cite web |last=Hasan |first=Md Mehedi |date=2024-01-25 |title=Bangladesh plans more licences for digital banks in push to go cashless |url=https://www.thedailystar.net/business/news/bangladesh-plans-more-licences-digital-banks-push-go-cashless-3527496 |access-date=2024-03-26 |website=[[The Daily Star (Bangladesh)|The Daily Star]] |language=en |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829064543/https://www.thedailystar.net/business/news/bangladesh-plans-more-licences-digital-banks-push-go-cashless-3527496 |url-status=live}}</ref>
==== India ==== In [[India]], 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.<ref name="forbes">{{Cite news |title=What Is Neobanking And How Does It Work?|url=https://www.forbes.com/advisor/in/banking/what-is-a-neobank/ |last1=Vaidhyanathan |first1=Jaya |last2=Aashika |first2=Jain |website=[[Forbes]] |date=31 July 2024 |archive-date=29 August 2024|archive-url=https://web.archive.org/web/20240829070304/https://www.forbes.com/advisor/in/banking/what-is-a-neobank/ |url-status=live}}</ref>
Neobanks in India typically offer a range of financial services, including [[savings account]]s, [[Transaction account|current accounts]], [[Debit card|debit]] and [[Credit card|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.<ref name="forbes"/>
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.<ref>{{Cite web|url=https://www.moneycontrol.com/news/business/groww-in-talks-with-federal-bank-for-neo-banking-vertical-8243021.html|title=Groww in talks with Federal Bank for neo-banking vertical|website=Moneycontrol}}</ref>
==== Iran ==== Neobanks in [[Iran]] are legally digital branches of banks. [[Central Bank of Iran|Central Bank]] passed a limiting law in 2022 which bans banks from starting mobile "neo" bank apps that have their own core.<ref>{{cite web |first=Mahsa |last=Taati | url=https://way2pay.ir/348261/ |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829065018/https://way2pay.ir/348261/ |trans-title=Banking experts answered in a conversation with the payment method / instructions of the central bank; A threat to neobanks in Iran? |language=fa |url-status=live | title=دستورالعمل بانک مرکزی؛ تهدیدی برای نئوبانکها در ایران؟ | date=10 December 2023 }}</ref> There are a number of active programs such as [[Omid Bank]], Tobank, [[Wepod]] and Zpod Kidzy,<ref>{{cite web | url=https://way2pay.ir/362917/ |archive-date=29 August 2024 |url-status=live |archive-url=https://web.archive.org/web/20240829065406/https://way2pay.ir/362917/ |first=Amir |last=Javednia |trans-title=Providing micro banking facilities for children and teenagers in Kidzi |language=fa | title=ارائه تسهیلات خرد بانکی برای کودکان و نوجوانان در کیدزی | date=6 May 2024 }}</ref> [[Bank Mellat]] Plus.<ref>{{cite web | url=https://peivast.com/p/146147 |trans-title=Neobank's line is the return of the digital bank to the text |language=fa |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829065939/https://peivast.com/p/146147 |url-status=live| title=خط خوردن نئوبانک بازگشت بانک دیجیتالی به متن | date=8 November 2022 }}</ref> Iranians need Identity national smart cards and video confirmation to open an account.<ref>{{cite web | url=https://peivast.com/p/102221 |archive-date=29 August 2024 |archive-url=https://web.archive.org/web/20240829065722/https://peivast.com/p/102221 |url-status=live |trans-title=Electronic banking in neobank clothing |language=fa | title=بانکداری الکترونیکی در لباس نئوبانک | date=26 May 2021 }}</ref>
== See also == * [[Online banking]] * [[Fintech]]
==References== {{reflist}}
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[[Category:Banking terms]] [[Category:Neobanks| ]]