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> A neobank is a technology company that provides banking services fully online. Not exactly a confidence builder, but go on. > Rather than having its own ban

> A neobank is a technology company that provides banking services fully online. Not exactly a confidence builder, but go on. > Rather than having its own bank charter, a neobank relies on a partner bank or “sponsor bank” to provide the regulatory umbrella for the company to accept customer deposits and provide other similar services as a bank. So... it's a middleman providing a fancy website for a real bank, but under a different name with minimal regulatory obligations? Now I'm getting nervous. Does it at least work like a normal bank, where they directly benefit from being a secure place to store money? > Although the neobank brings in the deposits, through marketing and other channels, the sponsor bank is the main beneficiary of the interest income. Oh dear. Who's going to pay for those tech company profit margins, then? > Typically, Neobanks have to rely more on the non interest income: account fees, transaction fees, credit cards, debit cards, and interchange fees. Fees and predatory loans -- every bank account holder's favorite things! What do I get out of this? > To attract customers to their services, the neobank must offer the above services in a way that is above and beyond better than what is currently available. That’s where technology comes into play. So... a really fancy website? > Traditional banks do not have a strong track record of innovation, technology adoption, and digital transformation. Between regulatory concerns, legacy systems, and the costs / risks of switching vendors, large technology spend scares most bankers away. Yeah, there are good reasons for that. People become very unhappy when they can't get their money. > Neobanks do not have to worry about that. They probably should! > They can build something from the ground up, in a slightly different regulatory environment If there's one thing Silicon Valley is good at, it's rebuilding complex, decades-old systems from the ground up in a regulation-free environment without having to relearn lots of historical lessons the hard way. > and use technology to serve a smaller population needs. Is this "smaller population" credulous people who want to be nickel-and-dimed to death so they can receive targeted advertising while trying to send an ACH transfer?

deleted 3y ago
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paulddraper 3y ago
> So... a really fancy website? Basically. Which isn't a high bar, if you've ever use a banking portal.
linsomniac 3y ago
>Is this "smaller population" credulous people who want to be nickel-and-dimed to death Oddly enough, most Neobanks have significantly lower fees than the traditional banks. The first Neobank I tried, close to a decade ago now, Simple, would do this really weird thing where if a debit came in and you didn't have money for it, it would reject it at no cost rather than charging you a fee. Later, PNC bought Simple, and their fee structure was $35 fee per overdraft, capped at 4 fees per day. $140/day they could charge you for not having money. Assuming your questions are in good faith: The bulk of Neobank customers seem to be people who want better tools to manage their money. Most banks provide poor tools, whether that's online/web, mobile, or money management, most banks are just crap at it. Largely, I started using Simple because I wanted better tools for managing my money. I would set up bills and budgets and then I could look at the app and it would tell me a "safe to spend" amount, once all the bills were taken care of. Then I moved onto One Finance, which got bought by Walmart and they neutered a lot of their features, but similar idea. I'm now on Qube, which has a monthly fee, which I'm hoping helps them stay independent, but it sounds like they're struggling for income anyway. Qube has features like: Virtual cards for every bill, a debit card that can't be charged unless you approve the spend (optionally), family accounts (my kids have their own debit cards now, I can pay them for chores with a transfer), "envelope savings". It's actually quite compelling compared to my other brick and mortar accounts.
- AdamH12113 3y ago
  Those do sound like decent features, although I'm not sure I'd pay a monthly fee for them personally. (I did envelope savings via YNAB for a while; I suppose having it integrated directly into my bank account might make things smoother?) I certainly agree that banks are pretty bad about improving their features and general UX. My comment was largely responding to the total lack of self-awareness in the article, which treats concepts like "tech company rebuilds complex legacy system" and "unregulated banking innovation" as being obviously good things in and of themselves. (The article seems to be part of a web3 blog, so no surprises there.) Taking the idea more seriously, I would expect neobanks to fail in a few different ways: 1. Being bought out or cut off by actual banks who decide they can offer new services directly without giving middlemen a cut of the money. 2. Enshittification. Lure in customers with low fees, then gradually add to the fees and start harvesting personal information for advertising. 3. Fraud. Seems to be a default option for many ambitious go-getters handling other people's money in a lightly-regulated environment. I'm feeling rather cynical about both tech and finance these days, but I wouldn't mind being wrong for a change.

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paulddraper 3y ago

> So... a really fancy website? Basically. Which isn't a high bar, if you've ever use a banking portal.

linsomniac 3y ago

>Is this "smaller population" credulous people who want to be nickel-and-dimed to death Oddly enough, most Neobanks have significantly lower fees than the traditional banks. The first Neobank I tried, close to a decade ago now, Simple, would do this really weird thing where if a debit came in and you didn't have money for it, it would reject it at no cost rather than charging you a fee. Later, PNC bought Simple, and their fee structure was $35 fee per overdraft, capped at 4 fees per day. $140/day they could charge you for not having money. Assuming your questions are in good faith: The bulk of Neobank customers seem to be people who want better tools to manage their money. Most banks provide poor tools, whether that's online/web, mobile, or money management, most banks are just crap at it. Largely, I started using Simple because I wanted better tools for managing my money. I would set up bills and budgets and then I could look at the app and it would tell me a "safe to spend" amount, once all the bills were taken care of. Then I moved onto One Finance, which got bought by Walmart and they neutered a lot of their features, but similar idea. I'm now on Qube, which has a monthly fee, which I'm hoping helps them stay independent, but it sounds like they're struggling for income anyway. Qube has features like: Virtual cards for every bill, a debit card that can't be charged unless you approve the spend (optionally), family accounts (my kids have their own debit cards now, I can pay them for chores with a transfer), "envelope savings". It's actually quite compelling compared to my other brick and mortar accounts.

AdamH12113 3y ago
Those do sound like decent features, although I'm not sure I'd pay a monthly fee for them personally. (I did envelope savings via YNAB for a while; I suppose having it integrated directly into my bank account might make things smoother?) I certainly agree that banks are pretty bad about improving their features and general UX. My comment was largely responding to the total lack of self-awareness in the article, which treats concepts like "tech company rebuilds complex legacy system" and "unregulated banking innovation" as being obviously good things in and of themselves. (The article seems to be part of a web3 blog, so no surprises there.) Taking the idea more seriously, I would expect neobanks to fail in a few different ways: 1. Being bought out or cut off by actual banks who decide they can offer new services directly without giving middlemen a cut of the money. 2. Enshittification. Lure in customers with low fees, then gradually add to the fees and start harvesting personal information for advertising. 3. Fraud. Seems to be a default option for many ambitious go-getters handling other people's money in a lightly-regulated environment. I'm feeling rather cynical about both tech and finance these days, but I wouldn't mind being wrong for a change.