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What is a Neobank? How It Works, Examples, Pros & Cons

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Neobanks are fintech companies that offer online-only financial services through mobile apps and websites without physical branches, unlike traditional banks. 

Neobanks typically specialize in specific services and may not hold a full banking license, unlike online and digital banks, but still prioritize the security of customer funds through partnerships with banks.

Examples of neobanks include Chime, Varo, and Revolut, each offering a variety of features, targeting different groups of customers, and available in different regions.

Digital transformation is a trend in almost every industry, and banking is no exception. The need for convenient, affordable, and easy-to-access financial services has introduced us to many modern alternatives to traditional banks, including neobanks

These digital-first banking alternatives typically offer financial products through user-friendly mobile apps, replacing long lines and paperwork with a simplified, accessible experience. A survey conducted by Statista shows that over 23 million people in the US hold a neobank account during 2022, and it will likely increase to 34.7 million by 2026. 

But are neobanks too good to be true? And should you use them?

Let’s get to know what a neobank really is and how it works in this article. If you’re thinking of opening an account with a neobank, we’ll also cover its pros and cons and some of the popular options in the market for you to consider. 

What is a Neobank?

The term “neobank” refers to financial technology (fintech) companies that offer services exclusively online through their mobile apps or websites without any physical branches, providing financial solutions and customer experiences through technology. 

Neobanks typically specialize in particular financial products or customer groups, such as checking accounts, foreign currency accounts, and corporate accounts for startups. Some neobanks also offer software or tools to help with accounting, budgeting, and invoice management

Neobanks vs Online Banks and Digital Banks

Since neobanks are online platforms for finance-related services, they are often confused with the terms online banks and digital banks.

However, while both offer services online, neobanks may not hold a full banking license, unlike online banks, which are basically the digital platforms of traditional banks.

Additionally, neobanks are also referred to as challenger banks or digital banks. While these three terms can be used interchangeably, challenger banks and digital banks typically hold full banking licenses that allow them to offer a broader range of services and compete directly with banks. On the other hand, neobanks often hold specialized licenses and focus on specific services or markets.

The term “challenger bank” is also more common in the UK, while “neobank” is more prevalent in the US. Nevertheless, they are used globally and are generally known as digital banks. 


Important Fact: Some jurisdictions have regulations about the name of this type of digital banking institution. For example, in Hong Kong, only licensed virtual banks can call themselves by that term. 

How Do Neobanks Work?

Typically, neobanks and fintech companies offer specialized financial products, including checking and savings accounts for individuals and businesses, debit cards, international money transfers, FX services, and various financial management tools.

These neobanks often develop their own platforms that allow users to sign up and access the service easily from mobile apps, web browsers, and sometimes desktop applications. These platforms are where customers can access their accounts, manage them, and get customer support.

Most neobanks partner with established traditional banks or financial institutions to access the underlying financial infrastructure and ensure regulatory compliance, including segregated accounts, to hold client funds. However, some neobanks can operate independently with their own banking license. 

How Do Neobanks Make Money?

Compared to traditional chartered banks, neobanks offer more affordable services, especially for start-ups and businesses. This includes cheaper or no monthly fees, competitive foreign exchange rates, and higher interest rates on savings accounts. 

Neobanks can offer lower fees while remaining profitable because they operate with a different business model than traditional banks, focussing on providing a digital banking experience and reducing costs associated with physical locations. 

These are the primary ways neobanks make money:

  • Subscription fees: Many neobanks offer free accounts, but some also offer account plans or tiers with additional features for a fee.
  • Transaction fees: Some neobanks charge fees for specific transactions like cross-border payments and ATM withdrawals outside their network.
  • Interchange fees: Neobanks that offer debit or credit cards usually earn a percentage plus a small fixed fee on each card transaction.
  • Commissions: Neobanks can also earn commissions through partnerships with other financial service providers to offer products like accounting or budgeting tools.

Examples of Neobanks

Let’s take a look at some examples of the popular neobanks and what they offer:



A screenshot of Chime website

Chime is a US-based financial technology company headquartered in San Francisco, California. It specializes in providing checking accounts with no monthly fees, overdraft fees, and minimum balance requirements. 

Although Chime is not a licensed bank, funds held in its accounts are protected up to the standard maximum FDIC insurance through its partner banks, The Bancorp Bank and Stride Bank.  



A screenshot of Varo website

Founded in 2015 and headquartered in San Francisco, Varo is a licensed national bank in the US. It offers online banking services, including checking accounts, high-yield savings accounts, loans, and Varo Believe credit cards. 

Varo also does not perform a credit check when you apply for an account.



A screenshot of Revolut website

Revolut is a London-based neobank that offers banking services for business and personal finances with free and paid account options. Revolut’s services are available in multiple countries and territories, including the UK, the US, Australia, Japan, Singapore, and Europe.

Revolut currently holds a banking license in the European Economic Area (EEA).


Looking for other popular neobanks? Check out our top 19 neobank list for options in other countries and regions. 

Pros and Cons of Neobanks

Before opening a neobank account, it’s important to weigh the pros and cons to see if they are really ideal for your business compared to traditional bank accounts. 

Pros of Neobanks

  • Lower fees: Compared to traditional banks, neobanks offer lower fees for almost every service they provide.
  • Higher interest rates: Some neobanks offer better interest rates on savings accounts compared to traditional banks
  • Convenience: Neobanks are fully digital, allowing you to manage your finances anytime and anywhere through secure apps.
  • Fast and easy account opening: You can typically open a neobank account online in minutes. 
  • Transparent pricing: Neobanks tend to be more transparent about their fee structure.
  • Customer service: Most neobanks offer 24/7 customer support through various channels.

Cons of Neobanks

  • No physical branches: The lack of physical branches can be inconvenient for less tech-savvy individuals who prefer face-to-face support.
  • Limited banking services: Fintech companies are restricted from providing loans, mortgages, or complex investment products.
  • Deposit insurance: Not all neobanks are FDIC-insured.
  • No checkbook option: Most neobanks do not offer checkbooks.

Should You Consider Using a Neobank?

Neobanks are great if you prefer the convenience of managing your finances digitally from your mobile phone anywhere at any time.

They are also a cost-effective option for small businesses, as these fintech companies often have lower or no fees compared to traditional banks. 

But it's also crucial that you take the time to consider the options by weighing out the pros and cons, the services they offer, and your own preference when it comes to banking and money management. 

For example, if your business is considering expanding into Asia, you may want to consider regional fintech solutions in Hong Kong, like Statrys. 

Alternative Solution in Hong Kong: Statrys

screenshot of statrys platform

Founded in 2018, Statrys is a payment service provider licensed as a Money Service Operator in Hong Kong. It offers a range of products to help SMEs grow in Asia, including multi-currency business accounts that support 11 major currencies.

Statrys’ services include:

  • Multi-currency business accounts that can hold 11 currencies, including HKD, USD, EUR, GBP, and CNY, under a single account number. 
  • International and local payments with real-time SWIFT tracking and MT-103 are available upon request.
  • Virtual and physical business cards with a card management tool to manage transactions in the palm of your hand. 
  • FX services with competitive exchange rates.
  • Integration with Xero to save time and resources through automated accounting.
  • A dedicated account manager for every client and personalized customer support through phone, email, live chat, WhatsApp, and WeChat. 
  • Company registration services in Hong Kong and Singapore.

Statrys’ partner bank is DBS Bank (Hong Kong). 

A dropdown of some supported currencies by the Statrys business account.


What is a neobank?

A neobank is a digital-first financial institution (or fintech firm) that operates exclusively online, offering banking services and innovative features without any physical branches.

What does a neobank do?


What is the difference between a neobank and a digital bank?


Are neobanks better than traditional banks?


Are neobanks FDIC insured? 


Looking for a business account?