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What’s a Neobank? Defining These Fintechs

What’s a Neobank? Defining These Fintechs

Jenius Bank Team3/7/2024 • Updated 2/26/2025
Woman researching neobanks on her laptop.
Neobanks are financial technology companies offering bank-like services. These days, banking looks different than it used to. People are no longer reliant on brick-and-mortar bank branches to manage their finances, deposit checks, and take care of other routine tasks. Digital tools and smart devices have made staying connected to your accounts easier and have allowed new banks, and bank-like companies, to take center stage. Neobanks are one option gaining popularity as an alternative to traditional banks. But there’s more to these so-called challenger banks than meets the eye.

Key Takeaways

  • Neobanks are a type of financial technology company that offers basic banking services like checking and savings accounts.
  • Most neobanks are not FDIC-insured, so your money may be at risk if the company goes under.
  • They typically offer fewer services than traditional or digital banks, which could make taking care of all your financial needs at the same place more difficult.

Neobank: A Definition

Neobanks aren’t banks in the traditional sense. Instead, they’re a type of financial technology (fintech) company that leverages modern money management tools to provide users with services similar to ones you’d find at a traditional bank. Neobanks rarely hold their own banking charter, which means their deposits may not be protected by FDIC insurance. They often partner with chartered institutions to expand their services. For that reason, they’re not directly regulated or audited by bank examiners.

How Do Neobanks Work?

Neobank customers access their accounts online since neobanks don’t typically have branches, and the most common products are checking and savings accounts. The lack of physical branches typically means neobanks have less overhead, and for that reason, they may be able to offer lower fees and higher rates on savings accounts than traditional banks.1Neobanks, like many fintech companies, are often venture-capital backed. This means they need to grow rapidly to continue receiving funding from their backers. And that growth may come at the cost of customer satisfaction.2 In 2022, J.D. Power reported that less than half of neobank customers felt it was convenient to reach a customer service representative when they needed assistance.3

Neobanks Aren’t FDIC-Insured

As mentioned, neobanks aren’t “real” banks because they lack a banking charter. This is essentially a license from a state or federal government that is required for a bank to offer financial services. A charter tends to provide banks with several benefits: most notably, it means that the bank may provide FDIC protection on deposit accounts, like checking and savings accounts.Unchartered financial companies, like neobanks, don’t have direct access to FDIC insurance, meaning you may have trouble getting your money back if they go under.

Neobanks and Partner Banks

Many neobanks partner with chartered institutions to offer certain benefits, such as FDIC insurance. These partnerships may cause confusion for customers because they think they’re opening an account with the neobank. Usually, sometime during the application process, they learn that their money is kept with a different, chartered institution. These partnerships leave the neobank acting as an intermediary for its customers and may cause a disjointed customer experience.

The Pros and Cons of Neobanks

Neobanks have grown in popularity. But they may not be the perfect solution for everyone.

The Pros of Neobanks

Here’s a summary of their potential benefits.
  • Strong online experience: Account holders usually have the option to access their funds from their computer, smartphone, or tablet 24/7.
  • Lower fees: Neobanks tend to keep fees to a minimum. That means you’ll likely have an account that doesn’t charge maintenance fees, overdraft fees, or other common fees.
  • Higher rates on deposit products: Because neobanks lack the overhead associated with traditional brick-and-mortar financial institutions, they tend to pass their savings on to consumers. Many offer higher rates on deposit products like checking and savings accounts.

The Cons of Neobanks

Here’s a summary of their potential drawbacks.
  • Limited product offerings: Neobanks tend to have limited products. This means you may need to partner with a digital or traditional bank to take care of all of your financial needs.
  • No FDIC insurance: Most neobanks aren’t FDIC-insured on their own (some may offer FDIC insurance through a partner bank). This could put your deposits at risk if the neobank closes its doors.
  • More difficult customer service experience: Many customers have reported difficulty reaching customer service representatives at neobanks, making it tough to get answers to questions or resolve problems in a timely manner.4
When choosing where to keep your money, do your due diligence and make sure you’re working with a bank that puts your interests first.

Neobanks vs Digital Banks

Digital banks, like Jenius Bank, share some traits with neobanks. Both prioritize the digital experience, tend to offer money management tools, and don't usually have physical branches. Despite these similarities, neobanks and digital banks are not the same. Digital banks have a charter (or may be a division of a chartered bank) and offer FDIC insurance to protect your money even if the bank goes under. Neobanks don’t, unless they are partnered with an insured bank. That puts you at risk of losing your money if the fintech firm fails. Digital banks also tend to offer a wider range of products than neobanks.5There may be neobanks that offer appealing services and seem preferable to the digital banks you’ve encountered. Understanding what those neobanks are and how they operate could help you make the most informed decision for you.

Final Thoughts

Both neobanks and digital banks are options for banking online. But neobanks typically lack the same deposit protection that digital and traditional banks offer. If you’re looking for the convenience of a neobank with the protection and services offered through a more traditional bank, opening an account with a digital bank is likely a better choice.Ready to take your banking experience into the future? Open a savings account with Jenius Bank today.

Neobank FAQ

Are neobanks safe?

Look for a neobank partnered with a chartered financial institution that provides FDIC Insurance for your deposited funds. FDIC insurance is limited to $250,000 per depositor, per account ownership type. So, if the neobank fails or the partner bank fails, you have a safety net.

Are neobanks real banks?

Neobanks are not chartered banks. But many neobanks let you perform the same financial tasks as traditional banks and offer the same types of loans as traditional financial institutions.

Will neobanks replace traditional banks?

It’s unlikely that neobanks will ever fully replace traditional banks. However, more people are starting to look for banks that offer digital and online services versus in-person services. It’s more likely that traditional banks will start embracing more digital services.6
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