What Is A Neobank?

  • A neobank is any bank that operates online without a network of physical branches. For this reason, neobanks are also known as online banks, virtual banks, or digital banks.
  • A neobank does not use technology to attract customers per se. Nevertheless, the technology appeals to savvier consumers who prefer to do their banking in a mobile app. Most neobanks partner with traditional banks to insure customer funds and do not tend to offer credit as a general rule.
  • Popular neobanks in the United States include Chime, Varo Bank, and MoneyLion. All three sell various products designed to help consumers improve their financial literacy and reduce fees.


A neobank is any bank that operates online without a network of physical branches. For this reason, neobanks are also known as online banks, virtual banks, or digital banks.

The earliest neobanks emerged from the ashes of the 2008 Global Financial Crisis as consumer confidence in the banking sector plummeted to historically low levels. Neobanks capitalized on the resentment felt toward traditional banks by offering a seamless online experience under a no or low-fee service model.

Today, neobanks are transforming the sector in a way not dissimilar to Airbnb in accommodation and Uber in personal transportation. Recent data shows that 6% of all American adults have a digital bank account, which equates to around 15.56 million people. This number is expected to increase to just over 39 million by 2025.

Common characteristics of a neobank

In fundamental terms, a neobank is a fintech company offering a banking service to tech-savvy consumers who prefer to do their banking in a mobile app. 

It should also be noted that neobanks do not use technology to attract customers per se. Instead, the technology is used to streamline processes, reduce fees, and then pass those savings on to customers.

The vast majority of neobanks also differ from traditional banks in the following ways:

  • They are not chartered as banks. In other words, their operations are not governed by bank-specific state or federal regulations. Having said that, neobanks do partner with traditional banks to insure customer deposits.
  • Neobanks do not extend traditional forms of credit to consumers such as an account overdraft. Their products may be more limited as a result and be restricted to checking and savings accounts, money transfer and payment services, and educative tools that increase financial literacy such as budget or investment trackers.
  • They use everything from big data to artificial intelligence to help consumers manage their money. This may include alerting the customer to unused subscriptions or unusually high bills. Some neobanks even help their users switch to cheaper electricity providers. 

Popular neobanks

Lastly, let’s take a look at some of the most popular neobanks on the market today:


Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.

The most popular in the United States with over 13 million customers and a valuation of $25 billion. True to type, Chime eliminates many of the fees associated with traditional banks and also provides consumers with an opportunity to build their credit.

Varo Bank

Varo was founded as a neobank but also received a full-service national charter in July 2020 to allow it to operate as a traditional bank. Varo boasts no minimum balance, no monthly fees, no credit checks for new customers, no overdraft fees, and a network of over 55,000 fee-free ATMs.


This neobank was founded in 2013 to serve more than 70% of American consumers who have less than $2,000 in savings and are living from paycheque to paycheque. The platform has a strong focus on helping its community of customers gain financial literacy.

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Affirm Business Model

Started as a pay-later solution integrated to merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interests earned from the consumer loans, when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.

Afterpay Business Model 

Afterpay is a FinTech company providing as a core service the “buy now pay later” solution. When a consumer purchases a product, Afterpay pays the seller and asks the consumer to pay 25%. The remaining 75% is paid in three, fortnightly installments that are also interest-free. Afterpay, in turn, makes money via merchant and late fees.

Quadpay Business Model

Quadpay was an American fintech company founded by Adam Ezra and Brad Lindenberg in 2017. Ezra and Lindenberg witnessed the rising popularity of buy-now-pay-later service Afterpay in Australia and similar service Klarna in Europe. Quadpay collects a range of fees from both the merchant and the consumer via merchandise fees, convenience fees, late payment, and interchange fees.

Revolut Business Model

Revolut is an English fintech company offering banking and investment services to consumers. Founded in 2015 by Nikolay Storonsky and Vlad Yatsenko, the company initially produced a low-rate travel card. Storonsky in particular was an avid traveler who became tired of spending hundreds of pounds on currency exchange and foreign transaction fees. The Revolut app and core banking account are free to use. Instead, money is made through a combination of subscription fees, transaction fees, perks, and ancillary services.

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