NeoBanks: Core Players, Business Model & Development Peculiarities

6 min readMar 3, 2021

Business Insider Intelligence’s Global Neobanks Report estimated that there were 39 million neobank users as of the end of 2019. According to the data provided by Airnow, as of May 2020, six digital banks included in this statistic had over 30 million IOS and Android app downloads combined.

In this article, we’ll take a closer look at the neobank business model. You’ll find out about its peculiarities, challenges, and future.

Traditional Banks vs. Neobanks

In a nutshell, the main difference between neobanks and traditional banks is that the former are 100% digital. Neobanks strive to make trips to the bank branch a relic of the past. It doesn’t have any physical offices and interacts with the clients via remote tools only — phone, email, and chat. All the products in neobanks are gathered in a handy mobile app that helps users to access their money 24/7. These apps are innovative and design-driven, with an interface that makes them very user-friendly. Neobank apps often have a number of features that allow you to customize services to your own needs.

Here are the major advantages of the neobank business model over traditional banking:

Lower fees. You’ve probably noticed that traditional banks charge for practically everything: a direct deposit transfer, going below your minimum balance or over the limit, and delay in payments. Neobanks don’t. With no offices and in-person consultants, they have fewer operational costs and share their benefits with clients.
Orientation towards customers. Neobanks offer higher interest rates — from 0.9 to 1% for savings and checking accounts, while traditional banks offer only 0.1–0.5%. You’ll certainly feel the difference. However, you will feel the difference if you accumulate a significant amount of money. Also, neobanks offer significant flexibility for customers who can choose what services they need rather than buy a package.
Ongoing compliance and accessibility. Customers of traditional banks have to face lengthy processes for completing and submitting information for ongoing compliance. In neobanks, any ongoing compliance requirements can be handled digitally, so the process is faster and more efficient. Customer location does not matter either.
Personalization. Usually, neobanks focus on a particular buyer, which helps them research the market and study the needs of their customers more thoroughly. They not only get smaller fees for bank services but also cool personalized offers and bonuses.

Core NeoBank Players on the Market

Here are the top 5 neobank market leaders:

Chime (USA). Value — US$14.5 billion. 10 million account holders. It was ranked the most valued neobank of 2020. The bank provides fee-free financial services through a mobile app, including an automated savings feature, checking accounts with no minimum balance, and early wage access. It has 10 million account holders.
NuBank (Brazil). US$10 billion. 30+ million account holders. This is the largest fintech in Latin America. One of the most popular products is NuConta (a digital account and an international credit card).
Tinkoff (Russia). US$6.5 billion. Over 12 million account holders. Its financial ecosystem offers a full range of financial as well as lifestyle services for businesses and individuals via its mobile and web app, including savings and investments, daily banking services, real estate, family banking, insurance, and many more.
Revolut (UK) US$5.5 billion. 12 million account holders. This British fintech company with headquarters in London offers a range of banking services, including GBP and EUR bank accounts, fee-free currency exchange, debit cards, stock trading, cryptocurrency exchange, as well as peer-to-peer payments.
N26 (Germany) US$3.5. 5 million account holders. The bank is currently offering its services throughout member states of the Single Euro Payments Area (SEPA) and also in the US. N26 provides customers with free basic current accounts and debit Mastercard cards, as well as Maestro cards for customers in certain markets.

Neobank Business Model

Neobanks can choose between three business models:

Obtain a full-fledged business license like a traditional bank. Example — Monzo.

Some neobanks have received a bank license, and their regulation is no different from traditional banks. At the same time, some countries have introduced a limited type of bank license specifically for the needs of neobanks, which is granted as an intermediate stage before obtaining a full-fledged license. In such cases, neobanks can build up their resources to enter the banking sector without reducing regulatory requirements. Neobanks in the UK and Australia can usually opt for this type of business model.

Cooperate with a traditional bank. Example — Chime.

In this case, all obligations to comply with regulatory requirements, together with credit risks, rest with partner banks, while the neobank provides only technological solutions.

Opt for a mixed model. Example — Bext.

Some neobanks are licensed only for some financial services and do the rest through partnerships with traditional banks. For example, in Europe, EMI (Electronic Money Institution) license allows a neobank to issue cards, transfer funds, and issue electronic money. Other services, such as deposit accounts, can only be provided by neobanks through cooperation with traditional banks.

Neobank App Development: Things to Consider

With 200+ successfully delivered fintech products under our belt, Itexus has a deep understanding of the industry in general and neobank apps development in particular. Although neobank launch is less costly, there are certain challenges one needs to rise to in order to bring a viable solution to the market.

Business challenges

The main challenge that emerging neobanks face is the rivalry with traditional banks. In order to stay in the game, neobanks need to:

Arrive at the appropriate product-market which is fit for addressable customer segments.
Target a wide range of consumer segments and offer the products and services that traditional banks don’t have.
Make decisions concerning the partnership with traditional banks.
Adapt to regulatory requirements of the geographical region that the new bank will cover.

Technology challenges

Today, the biggest technological challenge for neobanks is to be at the head of the field. Neobanks are already much better technologically equipped than their traditional banking counterparts, so we’ll witness the competition among neobanks. To be a success in this feels means to be a trendsetter. It doesn’t only concern technologies employed, but also the range of services, UX/UI, and effective marketing campaign to enforce brand recognition (see Monzo with their cool minimalistic cards).

Regulatory challenges

Before launching and operating a neobank, think about the regulatory environment in the region of operation. Europe has easier regulatory mechanisms and provides regulatory support in the form of Payment Services Directive Law.

Today, a number of countries in Asia are also considered to be a prospective environment for neobanks as it presents a huge population underserved by banking facilities and lenient regulatory requirements.

Future of Neobanking

A lot of neobanks, such as 26, Monzo, and Revolut, have already become household names, and valuations of the biggest neobanks now run into the tens of billions of dollars. The question is if this trend continues. Here are major trends neobanks will face in the nearest future:

Neobanks will share customers with traditional banks. Switzerland, one of the world’s most advanced nations for banking, illustrates the popularity of neobanks. According to the 2020 release of the Swiss Payment Monitor, one-tenth of 1,200 Swiss residents that were surveyed have used new online-banking solutions at least once. However, around three-quarters of neobank users combine neobank with traditional banking services. So far, people are not ready to transition to a completely cashless environment. The eradication of cash as a means of payment was “not an option” for around three-quarters of those surveyed.
The strong will survive. We expect that not all operating neobanks will remain afloat in 2021. The successful ones will keep their adoption rate growing while having enough experience and big pockets to sustain the pandemic.
Neobanks will need to rethink their strategy. They should take a step forward and start thinking as an IPO corporate company rather than a start-up. It will give more credibility and security to potential customers. We expect to see more partnerships to create new opportunities to reach new consumers and increase neobank brand awareness.
Latin America is anticipated to become a global leader of neobanking. There is a significant proportion of the unbanked and underbanked population plus a high smartphone penetration rate.

Today, neobanks continue to take the world by storm as Gen Z and their successors opt for neobanks to benefit from the speed and convenience of personal finance management. There is still a place for new digital banks on the market, but the competition gets tougher. In order to gain a competitive edge, you need to offer a slick solution with features tailored to your target audience. Itexus is ready to help you with this and become your neobank development partner. We cover the whole development process and offer BAs, designers, and developers with vast experience in fintech. We provide FinTech consultants and drive you through all the analysis and development process until the neobank launch. After that we’ll provide regular tech support. We’ll make sure your customers get the best of neobanking services. Contacts us for a consultation!

Originally published on Itexus Blog on March 3, 2021.