Neobanking vs Traditional Banking: Key Differences to Learn

Neobanks have doubtlessly revolutionized banking facilities around the world. This technology has unlocked many opportunities for easy and timeless financial services, enabling users to manage their finances conveniently, alongside saving valuable time.

Sources describe that the number of global neobank users was 39 million by the end of 2018, which is about to go beyond 360 million users in 2024. The rising figures reflect a trend where individuals are increasingly embracing digital banking for smooth financial transactions.

In this blog, we shall discuss the major differences between neobanking and traditional banking, which users should consider before employing one.

What is Traditional Banking?

Traditional banks are financial organizations that offer financial or banking facilities through physical branches. Such banks are headquartered in a city and have branches in different other cities and towns. Nowadays, traditional banks offer both physical and online services but with certain limitations.

The services of traditional banks may include creating and managing bank accounts, loans and investments, money transfers, credit cards, locker management, and cash withdrawals through automated teller machines.

What is Neobanking?

Neobanks are online or virtual financial institutions that provide banking and financial services online. Such banks do not have physical branches; hence, users do not have to visit anywhere to address their banking needs.

Users find such banks more flexible in managing their finances. Creating and managing bank accounts, loans and investments, credit cards, and money transfers are the common services of neobanking. Alongside that, neobanks have low and transparent charges that often fascinate users.

Differentiating Neobanking and Traditional Banking:

Accessibility:
Neobanks provide banking services only through online mode. On the other hand, traditional banks offer services through their physical branches and online portals or apps.

Demand:
Neobanking is the latest technology, gradually gaining attention and popularity. In many regions, people are still unaware of its existence. On the other hand, traditional banking services have been available for decades to serve people. Therefore, the latter has more demand among the users than the former at present.

Banking License:
Neobanks can have full, partial, or no license to operate. This indicates that such facilities may or may not have a public governing body and can be privately managed. Conversely, Traditional banks possess appropriate banking licenses, specifying their compliance with the law and regulations.

Services served:
Neobanks and traditional banks provide comparable services, including account setup and management, money transfers, credit card issuance, and financial products like loans and investments. Yet, traditional banks enable ATM cash withdrawals, a feature not supported by neobanking.

Charges:
Neobanks charge considerable interest rates and related charges. Traditional banking services, on the other hand, have high interest rates and additional charges.

Customer Support:
Neobanks only provides online customer support. Since such facilities do not have physical branches, users cannot raise their queries physically but virtually through designated platforms. Traditional banks offer customer service both online and offline. However, it may take longer for such banks to address all user concerns at a time as millions of people utilize such services.

Verification process:
The verification or confirmation process in neobanks is quicker and instant. Conversely, traditional banks require longer to process user data for verification formalities.

Risks:
Financial services always come with risks. While utilizing financial facilities, users pass confidential information to the banks, including their contact details, identity proof, and others. In case of data breaches and external threats, user information can be stolen and used unethically, whether neobank or traditional bank.

Concluding Remarks!

Neobanks are a new concept for many. Alongside that, it is also connected with finance. Therefore, people usually consider its risks rather than benefits before adopting. Nevertheless, neobanking is gaining attention from global audiences remarkably. The enhanced adoption of such banking facilities in the business sector can also play a crucial role in its growth. Therefore, we can anticipate a revolutionizing period in the banking and finance domain in the upcoming years, impacting traditional banking facilities.

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