Pay Theory Blog
July 22, 2022

Everything You Need To Know About Neobanking

The US has 29.8 million online-only bank account holders, one of the highest worldwide. This is possible with the help of neobanks. Neobanks are fintech companies that provide mobile and online banking apps, software, and other technologies. A neobank is an online-only banking option that allows customers to make electronic fund transfers, direct deposits, and the ability to make debit card purchases. You can access your account through your phone at any time of the day, eliminating typical brick-and-mortar locations. Payments, transfers, and transactions are all made online and can be done from anywhere.

Neobanks are oftentimes referred to as online-only banking or challenger banks. The term challenger bank is used because Neobanks are direct competitors of the traditional banking system. It also came about as Neobanks began to disrupt the banking industry with their agility and innovation.

Why Are These Challenger Banks Relevant?

Challenger banks tend to be more transparent than their traditional competitors, making the younger generation leap at this opportunity. The most well-known neobank is Chime.

Chime’s mission is to prioritize inclusivity within financing. Chime targets middle-class Americans who prioritize flexibility over when and how they get paid. Gen Z and wary millennials are reaching toward neobanks, such as Chime, because of the fluidity traditional banks have yet to offer. Through the global economic pandemic recovery, many people are no longer trusting large traditional institutions. By 2024, 47.8 million Americans will hold digital-only bank accounts.

The Rise of Neobanking

Since the pandemic, there is a total of 333 neobanks worldwide. The pandemic presented immense opportunities for the finance industry to evolve with emerging technologies. Specifically, that there were ways to help the underserved that have been left behind by traditional banks in the past.

“Pandemic fallout has made the traditional retail banking environment even more demanding. For incumbents to remain relevant, now is the time to embed finance within customer lifestyle and embrace platform-based models - procrastination is no longer an option,” said John Berry, CEO of the European Financial Management Association.

What does Neobanking Mean for SaaS?

You may be asking yourself how this integration of challenger banks will impact SaaS. Some of the many benefits third-party companies will see are:

  • Streamlining business operations with banking services incorporated into the company's own platform/solution.
  • Reduce operating costs without creating a new banking infrastructure.
  • Increased customer loyalty and better customer acquisition.
  • Less stress around ensuring regulatory compliance.

There is a growing demand for individualized banking products and services for underbanked or unbanked individuals. According to Capgemini’s World Retail Banking Report, over 80% of clients that plan to switch financial service providers in the next three years use a banking product from a big tech firm or a digital bank — indicating the steadily growing demand for neobanking.