The rise of neobanks

By Mark Copsey, Director at Allworths Wealth Management

It wasn’t until a recent trip to Norway I saw firsthand the power of neobanks. An online wallet on a phone holding multiple currencies allowing the user to withdraw cash in Kroner without incurring fees and lousy exchange rates. Revolut, the UK-based neobank (and the app I happened to see), claims it can handle currencies in over 150 countries.

So, if like me you hadn’t really heard of neobanks, here is a brief description: a neobank is a type of bank that is 100% digital and reaches its customers via mobile apps and personal computer platforms, not through traditional physical branch networks. Neobanks are technology-driven and therefore not constrained by legacy systems of traditional banking competitors.

As with any new industry, especially one holding your hard-earned cash, there will be some early scepticism as to how safe these new neobanks are.

As with traditional banks, neobanks will be regulated by APRA and ASIC and will be Approved Deposit Taking Institutions and therefore deposit holders will be afforded the safety of the government guarantee up to $250,000.

There are a number of Australian neobanks set to launch and all will have slightly different offerings, from traditional savings accounts, mortgages and loans to multiple currency wallets, budgeting tools and small business loans.

These apps can provide the user with precise details of whom the transaction was with (some with the supplier logo), track spending habits and compare to previous periods, assisting the user to understand their spending habits and adjust them if necessary.

Because neobanks don’t have the costs of running branches like traditional banks, they are able to pass these cost savings on to customers with superior deposit rates. At the time of writing, Xinja, Up and 86 400 are offering 2.25% on deposits.

86 400 currently have a competitive variable mortgage rate of 3.09% on a principal and interest loan.

While relatively new in Australia, I am sure that with the Australian appetite for new tech we are going to see a rapid rise in neobanks in the next year or so.

Allworths is not in any way recommending any of the products referred to in this article and they are used for reference purposes only. Before making a decision to open an account, you should make your own assessment on whether the product is right for you.