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Neobanking: How a new, fully digital service is threatening to disrupt Australia’s big banks

Let me just clear this up right off the bat: no matter how it sounds, neobanks have nothing to do with a character from The Matrix.

Well, unless you consider the film’s central questions surrounding individual freedom and the control that humans wield over our own lives – then there’s some crossover between the two.

Either way, ‘neobanks’ are starting to come to Australia and will offer a whole new banking experience to those willing to make the switch.

What is a neobank?

Put simply, a neobank is a bank that has no brick-and-mortar location or branches. They are built to operate on digital and mobile platforms.

Rather than going into a physical location or logging into your bank’s online portal (which is just an extension of the traditional bank), neobanking is completely online.

More than that, though – the systems are 100% new, which means it’s just not a tacky digital front-end on cumbersome technology from traditional banks.

Neobanking started around five years ago in Europe through companies like Monzo and Starling in the UK and Fidor in Germany. It is now a real threat to the monopoly of traditional banks, having reinvented traditional banking practices in place since the first banks began over 4,000 years ago.

How does a neobank work?

Neobanks have a different business model to traditional banks. Like all banks, they make money on the margin between lending money and money coming in, but they do so in a unique way. Mainly, customer fees are slashed because neobanks don’t have a costly network of brick-and-mortar branches to fill with employees and pay rent on.

While they don’t have retail employees, neobanks serve customers through personalised services driven by technology. For example, the advanced technology used by neobanks allows them to complete complex processes and forms much faster than traditional banks, which also allows for great security protocols.

Neobanks provide an “amazing, modern, customer-led digital banking service that blows everyone else in the market out of the water,” Xinja CEO Eric Wilson explained to Finsia.

“Neobanks put customers at the centre of everything. It’s not just old school banking done through an app or the web, it’s a new way of thinking about what a bank can be and do.”

What are the benefits of neobanking?

Whether you are a 21-year-old uni student or a mother of three, neobanks offer features that will drastically improve your banking experience.

  • Transparency: Banks, honest? Lunacy! But it’s true. Most neobanks only let you spend what you can actually afford, and you can expect fewer surprise charges and penalty rates.
  • Low costs: With no physical locations and fewer employees, accounts are usually inexpensive. Most neobanks waive monthly fees.
  • Helpful technology: Everything you usually have to go into a bank to do can be completed from your mobile device. As well as basic banking, you can manage your finances, monitor account activity and apply for loans.
  • Easy loans: Courtesy of said technology, neobanks can evaluate your credit rapidly and speed up the time-consuming process of applying for a loan.

How to get started with a neobank

Neobanking is only just being established in Australia. At the moment you can sign up to Up, Xinja, Pelikin, Volt, 86 400, Archa, QPay and Revolut. Though it is important to keep in mind that as of now, only Volt has received the new restricted Authorised Deposit-Taking Institution (ADI) licence. This is a full banking license that makes it the first fully-functioning neobank in Australia.

If you are interested in joining any of these banks, just head to their website and follow the prompts to join. I have signed up to Xinja and the process to join the waitlist (which is how most neobanks operate) was as simple as creating a Twitter or Gmail account.

I’m not in a position to vet the security and features of every single neobank, so be sure to do your research before transferring your entire life savings across.

Neobanks are subject to the same regulations as traditional banks, so you shouldn’t be too concerned about your money disappearing. If by some chance your money does go missing, the Australian Government will reimburse up to $250,000.

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Clear eyes, full hearts, can’t lose.

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