A neobank is a digital-first bank that operates without physical branches.
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Every flavor of bank
Banks come in many forms - cooperative banks share profits with member-owners; microfinance banks support small entrepreneurs - but at root all banks are institutions that enable two things:
Deposits Money that’s placed in the bank for safekeeping. | Loans Money that’s borrowed from the bank for financing various expenses. |
A “neobank” is generally used to mean any digital-first bank, i.e., a bank in which these deposits and loans are done online rather than in-person.
Sometimes a more precise definition is used, however. In the U.S. and Europe, a neobank is often defined as any digital-first bank that does not have a banking license. This distinguishes neobanks from licensed “direct banks” (U.S.) or “challenger banks” (Europe):
*Direct banks are called challenger banks in Europe.
A neobank in this stricter sense is simply an app or website that “rents” banking services from a licensed bank. A real-world example would be the American fintech Current, whose banking services are provided by the licensed Choice Financial Group.
Interesting fact
“Bank” derives from the Italian “banca” (table) because Florentine bankers in the Renaissance would conduct business at tables covered with green cloth.
The evolution of banking
“Banking is no longer somewhere you go, it’s something you do.” ― Brett King, Bank 3.0 |
Banks have evolved considerably since their earliest recorded use as storehouses for grain and silver in ancient Mesopotamia. But while a lot of change has occurred over those 4,000+ years, one could argue that the most change is occurring right now.
That’s because banking is for the first time becoming decentralized. With the advent of blockchain technology, individuals can access banking services without centralized intermediaries, enabling global access to accounts, loans, interest-bearing deposits, and much more.
Wearing thin
The number of bank branches per $1B in deposits, also known as bank branch density, has declined in recent years. In the U.S., for example, total bank deposits nearly doubled between 2016 and 2022 but the number of bank branches declined by approximately 15%.
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