From Traditional to Digital Banks, now Neobanks

As the fintech movement continues to evolve from traditional banks to solely digital banks, startups and more established fintechs are launching efforts to become neobanks.

Neobanks are companies that target improving consumer banking through minimizing or eliminating fees and offering advice that customers need (most commonly around budgeting or saving) through a simple digital user experience.  SoFi (known as Social Finance) is known for its lending and life insurance products, and will be launching a neoBank (SoFi Money) in the next few months.  

Due to the high costs and extensive regulation process of gaining a bank charter (for Federal Deposit Insurance Corporation coverage), there have been few companies attempting to go it alone without the partnership of an established bank or credit union.  However, the opportunity to remove this middle-person and focus on multiple revenue streams (instead of one specific product play) has become to big to pass up.

Neobanks can be a great fit for young millennials looking to stay informed about building up their savings, keeping their money easily accessible, and avoiding the cost of bank fees or deposit minimums.  But for customers looking to build a financial relationship with a company that offers auto and home loans, retirement and investing accounts, and competitive credit cards - - a digital bank will still make more sense in the long-run.

In Europe, neobanks are labeled as "challenger" banks as they openly challenge established bank brands to attract customers looking for a different experience and better access.  As open banking (the ability for customers to authorize their data to be shared outside of their bank openly to fintechs and startups) spreads in this area of the world, the learnings of neobanks and other alternatives will then be applied to possible global implementation efforts.

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