Fintech and Neobanks

• What is FinTech?

Financial technology, FinTech for short, describes transformation and evolution of financial services and technology.

The term can refer to start-ups, technology companies or even legacy service providers.

 It is increasingly difficult to know where technology ends and where financial services begin.

• Who’s doing this and what does a typical FinTech company look like?

When people think of FinTech, they often focus on startups, breaking into areas that banks and other legacy financial institutions have dominated. But we must think of all participants in a larger FinTech ecosystem:

• Well-established financial institutions such as Bank of America.
• Big tech companies such as Apple, Google, Facebook, and Twitter.
• Disruptors: fast-moving companies, often startups, focused on a particular innovative technology or process.

• What’s a neobank?

We can define neo-banks as an institution that provides some combination of checking accounts, savings accounts and debit cards via digital channels—primarily mobile—without any physical bank branches.

• How else do neobanks differ from traditional banks?

Financial analysts say neobanks stand out because of these features:

• Low cost structure
• Large ATM networks with no fees.
• No overdraft fees because the checking products are prepaid, reloadable debit cards.
• A simple and engaging mobile experience, unlike banking on a phone with a traditional bank.
• Intuitive budgeting and money-tracking tools.
• Real-time balances.

• What are the disadvantages of a neobank?

• If you need bank branch access, a neobank won’t be a good fit.
• If you’re paid in cash, a neobank isn’t likely your first choice, either. While there are options to deposit cash via Green Dot sites, as mentioned above, sometimes the sites charge a fee.
• Also, if you’re looking for a bank that will grow with you as your needs evolve, a neobank might not be the best choice. That is not to say neobanks themselves aren’t evolving, and this criticism might not be true within a few years.
• When you’re ready to buy a house, your neobank might be in the mortgage business, or when you inherit some money they might a wealth management product. However, they might not.

• What is the future of neobanks?

• Existing neobanks will likely expand into new product lines and look to become chartered banking institutions.
• Traditional banks will look likely for ways to tap this market with new sub-brands like Wells Fargo’s Greenhouse or Chase’s Finn.
• And fintech players in other lines will look to get into the deposit business.

The other variable is the global landscape. Neobanks are known as “challenger banks” in Europe, and several of them have their eyes set on the U.S. market but are looking for more clarity on how they might navigate the American banking system, which is fairly complex given the national chartering structure, the state chartering structure and the laws surrounding delivering services without branches.

As it stands now, many of those hurdles are enough to keep many on the other side of the Atlantic.

Resources:

https://relayto.com/pwc-financial/questions-and-answers-fintech-b0zaegbp

https://www.bankrate.com/banking/5-questions-to-ask-before-trying-a-neobank/