This post was most recently updated on May 9th, 2022

The explosion of mobile technology, as well as people’s skepticism towards traditional banks in the aftermath of the economic crisis, make this an ideal time for new financial enterprises such as neo banks to emerge.

Neo banks are financial tech firms that typically collaborate with banks to provide digital-only services. In other words, neo banks are a group of entrepreneurs that make it easier to handle your money in this mobile age. They’ve only been around for a little over a decade, but are growing in popularity like wildfire.

If you’re thinking about using a neo bank as a primary or secondary place to manage your money, it’s essential to first learn about its limitations and risks. The five most commonly asked questions about neo banks are answered below. These answers will clear your mind about neo banks and help you decide if it is worth it for you. Dive in!

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Is the money safe in Neo Bank?

Neo bank apps are often streamlined and uncomplicated, intending to assist you in better understanding and eventually improving your saving and spending habits.

It is critical to understand that neo banks are not typically banks: they do not have charters from the Office of the Comptroller of the Currency or state regulators. They are not insured by the Federal Deposit Insurance Corporation (FDIC).

Instead, they collaborate with specialist banks chartered to obtain FDIC coverage for deposits made at neo banks, and they offer prepaid cards in place of traditional debit cards. In other words, they’ve improved the user experience, yet your money remains in a bank. That’s fantastic news since it means your money is safe.

How do Neo Banks differ from traditional banks?

Neo-banks are financial technology (fintech) enterprises that only operate online or through mobile apps. Simply defined, neo-banks are digital banks that do not have physical locations. Instead, neo-banks employ a design thinking approach to a specific banking area, tailoring their goods and services to make banking more accessible and convenient for the end-users.

Neo-banks provide a limited number of products and services in comparison to traditional banks, which offer a wider range of services. Furthermore, because neo-banks are heavily focused on technology, they may be unable to meet the banking demands of non-tech-aware consumers or those from rural areas of the country who prefer face-to-face engagement with their financial custodians.

According to Jim Marous, co-publisher of The Financial Brand, neo banks stand apart for the following reasons:

Cheap-cost structure: there are no monthly fees, no withdrawal fees, and low reloading fees.
Wide-spread ATM networks with no costs.
There are no overdraft fees because the checking products are prepaid, reloadable debit cards.
A straightforward and engaging smartphone experience, as opposed to traditional bank phone banking.
Intuitive budgeting and money-tracking features to help you decide whether or not to buy something.
Real-time balances: Your smartphone’s ratio displays the exact amount of money you have accessible.

Experts believe many neo banks are trying to expand beyond deposits as they are aiming for a transition from startups financed by venture capitalists to sustainable and successful businesses.

This expansion is commonly referred to as banking rebundling. This is because neo banks sought to disrupt the deposit side of banking, while many fintech lenders sought to transform the lending industry, they decoupled banking. However, loans and deposits tend to go hand-in-hand, as do payments and wealth management, so these organizations are now reassembling the puzzle.

Why use a Neo Bank?

Neo banks bridge the gap between the services provided by traditional banks and the changing client expectations in the digital age. They are reshaping the face of fintech and may one day supplant traditional banks.

Many people may mix up neo banks and digital banks. Both provide banking services via cell phones and other similar devices. But that’s where the parallels end.

The cornerstone of a neo bank’s experience is a mobile app, where you can make transfers, pay bills, view transactions, receive direct deposits, and many more other features. A neo bank with a checking account or an equivalent usually mails a debit card, but due to the lack of a branch, cash and check services are limited or non-existent. However, if you are a teen with limited financial goals, neo banks are the most suitable banking facility.

Neo banks are often adept at providing users with tools to help them understand their spending. These characteristics are especially appealing to young adults. Indeed, according to recent Business Insider Intelligence data, 52 percent of individuals aged 18 to 22 think a feature that allows them to compare their spending to their peers is critical or extremely important when choosing a bank.

In addition, if you’re having trouble with overdrafts, a neo bank is a fantastic alternative because they usually don’t allow them. If you don’t have enough money to make a purchase, your card will be rejected.

What are the major drawbacks of a Neo Bank?

A neo bank will not provide actual checkbooks but may deliver checks. However, neo banks’ mobile check deposit services, if accessible, may refuse checks for more beyond a specified amount.

If you require bank branch access, a neo bank is not a good option for you. Likewise, a neo bank is unlikely to be your first choice if you prefer cash payments. While there are methods to deposit funds using Green Dot sites, as previously indicated, the services occasionally charge a fee.

Many neo banks provide free access to a third-party ATM network for cash withdrawals, and those ATMs might be challenging to locate because they lack neo bank branding.

Also, if you’re searching for a bank that will adapt to your changing demands, a neo bank might not be the greatest option. That is not to suggest that neo banks aren’t evolving, and this complaint may no longer be valid in a few years.

What is the future of Neo Banks?

As previously said, existing neo banks will most likely diversify into other product lines and seek to become chartered banking institutions. In addition, traditional banks will most certainly explore innovative ways to enter this sector, and other fintech businesses will want to join the deposit market.

Thus, we can conclude that in recent times, Neo banks are the most demanding branch. Akudo, a neo bank for teenagers, offers prepaid debit cards for teens to manage their finances under the supervision of their parents. The limitations of neo banks are a blessing for teens walking towards financial independence and thereby having control of their finances with virtue.

Furthermore, Neobanks are leaders in behavioral analytics and reporting. Teenagers, who are accustomed to using smartphones, prefer to see a prompt or a reminder in their banking apps as an easy way to complete their transactions. Thus, we can say it is a smart banking matching step with the new age generation.