Are neobanks real banks?
Monday, 21 October 2019
You may have seen ads for mobile banking apps that offer simple, low-cost accounts and helpful budgeting and saving features.
These "neobanks" typically provide no-fee checking and savings accounts, smooth, user-friendly platforms and debit cards with access to free ATM networks.
Customers can conduct all their business online without having to visit a bank branch, and usually don't incur overdraft fees. Neobank interest rates often beat the market average.
Are neobanks actually banks, though? It depends.
Technically, many of these neobanks don't qualify as real banks , but they often team with regulated banks to offer accounts with the same protection. As bankrate.com noted last year, most neobanks lack state or federal bank charters, as well as the Federal Deposit Insurance Corporation (FDIC) coverage that safeguards customers' funds.
If a neobank has joined with a chartered bank to offer accounts that are FDIC-insured, your deposits would be covered, up to the legal limits, in the unlikely event of bank failure. Consumers also might find some neobanks that do qualify as real banks on their own.
Neobanks first appeared early this decade, formed by fintech startups aiming to challenge standard banks and appeal to people without regular bank accounts. Since then, some of those traditional banks have partnered with or acquired neobanks, or launched their own neobank-style businesses.
BBVA purchased neobank Simple more than five years ago. BBVA, as an FDIC-insured bank, holds Simple customers' funds, while Simple handles its own mobile app and features designed to help track spending, saving and goals. Like other neobanks, Simple says it wants to change banking.
BBVA also has another subsidiary, Azlo, which is a financial services app targeting entrepreneurs.
Consumers need to decide for themselves whether neobanks with online tools and support or traditional banks with branches and tellers in addition to an internet presence, make more sense for them. If you do go the neobank route, check the company's app or website to make sure it's affiliated with, or part of, a real bank with FDIC insurance.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.
You may also be interested in:
Savings & Budgeting
Why should I choose a neobank?
Neobanks, virtual banks with no- or low-fee accounts, higher interest rates, helpful money-handling tools and user-friendly platforms, may be a strong choice for tech-savvy consumers seeking a different banking option. Customers need to be comfortable conducting their transactions online or via mobile app.
What's a smart debt?
Debt can be a smart financial tool if you use it correctly. Do you know if your debt helping or hurting your financial future? Get insider tips here.
Savings & Budgeting
Who regulates fintechs?
Fintech firms — mobile neobanks, payment apps and online lenders — are challenging and changing the traditional financial services environment. Who regulates them? It depends on the particular fintech and the services it offers.