Contrary to what you might think, neobanks aren’t part of an obscure reference to The Matrix. Neobanks (unfortunately) do not involve, nor have ever involved Keanu Reeves, and are actually just all-online banks.
A shame, really.
A neobank (sometimes called a smartbank) is a digital-only bank that can usually be accessed via an app on a smartphone, and not affiliated with any of the big four banks (ANZ, Westpac, NAB, or Commonwealth Bank). There’s no such thing as bricks-and-mortar with a neobank and their technology is typically designed from scratch, unlike traditional banks.
If you’ve grown up knowing only the big four, the idea of taking your money totally online can be daunting, especially if you’re not well acquainted with your finances.
Neobanks still offer the same products as regular banks like bank accounts, savings accounts, and home loans, with the same level of security and licensing restrictions as your standard bank has. Once a neobank is a licensed ADI it’s covered by the Financial Claims Scheme (FCS), meaning the Australian Government guarantees up to a value of $250,000 per person: offering the same security as a brick-and-mortar bank.
My interest is piqued – show me the banks!
Currently in Australia, you can get yourself started with the following banks:
Pros of neobanking
A lot of banks in Australia already have a degree of a digital offering – so why choose a neobank?
Neobanks are unique in the sense that they start from scratch, meaning that a lot of the time, user-friendly and consumer-first technology is at the forefront. The app interface is usually slick, minimal and easy to use, with features traditional banks don’t offer. Neobanks can optimise their service with much newer technology that makes the process easier for everybody: why fill out pages of paperwork when you could submit an online-only form?
Think about it: without needing to operate national offices and physical bank branches, neobanks can keep costs to a minimum. Of course, that shouldn’t matter to you – but what should matter, is that a cost-efficient bank doesn’t need to make as much money off you, the customer. The savings you tend to receive from a neobank come in the form of competitive interest rates and low or no fees.
Unlike anything else
We’ll touch on this in greater detail in the coming weeks – but what we can say now, is that many neobanks have made promises to be unlike the banks we’ve come to know. Australia’s royal commission has opened a Pandora’s box of examples of banks failing their customers, caught extorting hundreds of millions of dollars in fees; some not even being living customers.
Cons of neobanking
As they say, there’s no such thing as a free lunch. So what might be some of the downsides of a neobank?
No physical branches
As much as it might be a pro, the concept of digital-only isn’t for everybody. Without physical branches to visit and customer service representatives to speak to in person, you might find yourself feeling a little helpless. Many neobanks however, do offer online support and the option to speak to a representative over the phone.
Fewer product offerings
As neobanks are a newer form of banking, they don’t yet offer the full array of services traditional banks provide. Neobank Xinja says they aren’t far behind the big banks though; so watch this space.