With fintech rapidly changing the way we think about our finances, including loans, payments, and credit cards to name a few, there’s no doubt that banking alternatives are sure to rise from the mud. With the pandemic devastating the world and countless people in treacherous financial troubles, the rise of this new system dubbed neobanking may give hope and some solutions for people struggling to catch their financial footing. By definition, a neobank is a banking service that operates solely online, with no physical locations whatsoever, such as through a website or a smartphone application. Some well-known examples of neobanks include Cash App, PayPal, and Venmo just to name a few. While it may seem to some that these are just alternatives to their traditional banking experience with a long-standing financial establishment such as JPMorgan Chase, neobanks have actually provided much needed support for many struggling families to make payments throughout the duration of the pandemic and are slowly becoming the new norm. Families have also been able to receive government stimulus payments straight through the apps and even have overdraft protection, which other traditional banks don’t always offer. The pandemic has actually given neobanks far more users which has given them the opportunity to develop new services and tweak their user interface for a more user friendly design.
One of the biggest advantages to neobanking over traditional commercial banks is their approval ratings. Much of the time, commercial banks will deny applicants who don’t appear to have the financial backing to effectively and efficiently pay back loans (for example by having a low account balance), while neobanks require no such authentication. Instead, neobanks charge no overdraft fees, require no minimum account balance, and make most of their revenue through interchange fees during customers’ transactions and instant transfer fees. On top of this, being born into the digital world only strengthens the ways in which they are able to reach new customers and develop their services. API, or application programming interface, allows for neobanks to reduce some of the hassle involved with applying for debit cards and even offer unique payment plans and rewards options with their own unique cards. Digital payments are perhaps their bread and butter, as companies such as Stripe and Shopify make e-commerce shopping easier than ever. Having the know-how of technology also grants them with advanced security features, which is crucial in maintaining customers. The trend here seems to dictate that traditional commercial banks are falling more and more out of favor with the public, which is only proven to be true with banks such as JPMorgan Chase. They must adapt with neobanks if they want to have any chance at survival.