Neobanks are rapidly gaining popularity in Ukraine and the world, posing serious competition to traditional banks. At the same time, many people do not understand what is the difference between them, and why use different terms to denote them. So let’s get to the bottom of this.
What is neobank
The term “neobank” began to be widely used since 2017 to denote financial institutions that offer services with a wide application of financial technologies. In essence, this is a type of direct bank (English Direct bank), which conducts its activities remotely using telephone and Internet communication and without an extensive network of branches. Direct banks have been operating in various countries since the early 90s of the last century. And the rapid development of the mobile Internet and the wide distribution of smartphones allowed the creation of neobanks, or, as they are also called, digital or virtual banks.
Neobanks, in turn, are divided into two types. The first is completely independent financial institutions that have an appropriate banking license and work independently. This is, for example, the British Monzo or the German N26. The second is non-banks that, for various reasons, directly cooperate with traditional banks to provide financial services. All Ukrainian non-banks belong to this type. For example, monobank works on the basis of Universal Bank, and izibank on the basis of Taskombank.
What is the difference between neobanks and traditional banks
The main difference between neobanks and conventional banks is the absence of branches. This allows non-banks to save large amounts of money on staff salaries, rent and maintenance of premises, collection, etc. Thanks to this, they can offer customers more favorable conditions for the provision of services, which, together with the mobility and ease of opening accounts, makes them attractive to a large part of the population.
On the other hand, non-banks provide fewer services than traditional banks. For example, they hardly engage in long-term lending, limiting themselves to installment payments for the purchase of goods and credit limits on cards. This forces people to turn to traditional banks for loans for serious purposes such as buying a home, vehicle, education, starting a business, etc. Also, non-banks focus on private individuals in their work, so the list of services for legal entities and enterprises is usually quite limited.
Traditional banks require a full banking license, which can be very expensive. Neobanks work on the basis of cheaper financial or payment licenses. In Ukraine, this is one of the reasons that all non-banks operate in cooperation with traditional banks. Among other differences between neobanks and traditional banks, we can highlight the possibility of remote account opening, round-the-clock technical support that works through popular messengers, as well as functional mobile applications. All this makes their use simple and convenient even for different categories of people and allows them to successfully compete with traditional banks.
