Many people associate banks with brick-and-mortar buildings and in-person transactions. While most financial institutions offer robust online services, a growing number of firms are skipping a physical presence altogether.
Neobanks provide digital-only banking with lower fees and more competitive interest rates than traditional institutions. These fintech (financial technology) firms are projected to generate more than 2 trillion in revenue in 2030, according to data from Grand View Research, up from about $96 billion in 2023.
CNBC Select explores the rise of neobanks, with info on popular platforms, whether using one is right for you and more.
What we'll cover
What is a neobank?
A neobank is a fintech company that provides financial services through a mobile app or website, including checking and savings accounts, budgeting tools and cash advances. They typically appeal to customers looking for flexibility, convenience and transparency in their banking.
Since neobanks don't carry the costs associated with maintaining physical locations, they can offer lower fees and higher interest rates on savings accounts. They also tend to have more intuitive apps and websites with a more seamless and user-friendly customer experience.
Most neobanks aren't actually banks —they're not chartered by the Office of the Comptroller of the Currency — so they have to partner with chartered banks to aid in the delivery of products and services and to make sure deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
Examples of popular neobanks
While neobanks are still a relatively new industry, a few platforms are already gaining traction.
Chime
With an estimated 21.6 million users in 2023, Chime is one of the largest neobanks on the market. Chime partners with the Bancorp Bank and Stride Bank to provide banking services and to ensure funds are FDIC-protected.
Checking accounts have no monthly service or overdraft charges and come with no-fee access to over 60,000 ATMs nationwide. Customers who use direct deposit can also access funds up to two days early.
Varo
Unlike Chime, Varo received a national bank charter back in 2020, so it is officially considered a bank and its accounts are directly FDIC-insured. There is no minimum balance requirement, no credit check to open an account and no monthly maintenance fees or charges for transfers or overdrafts.
In addition, Varo has partnered with Zelle, so users can transfer money digitally to friends and family.
Varo Bank Account
Monthly maintenance fee
None
Minimum balance
$0
Free ATM network
More than 40,000+ fee-free in-network Allpoint ATMs in the U.S.
Overdraft fee
$0
Minimum deposit to open
None
Annual Percentage Yield (APY)
$0
Mobile check deposit
Yes
Terms apply.
Current
Current allows customers to create "saving pods" with an annual bonus of up to 4.00%. Like other neobanks, Current foregoes annual fees and minimum balance requirements and offers early access to direct deposit payments.
The company partners with Choice Financial Group and Cross River Bank to ensure its deposits are FDIC-insured.
Current Spend Account
Monthly maintenance fee
None
Minimum balance
$0
Free ATM network
More than 40,000+ fee-free in-network Allpoint ATMs in the U.S.
Overdraft fee
Fee-free overdraft feature as long as you receive $500 or more in Qualifying Deposits into your Current Account over the preceding 30-day period.
Minimum deposit to open
None
Annual Percentage Yield (APY)
$0
Mobile check deposit
Yes
Terms apply.
Pros and cons of using a neobank
Neobanks offer more flexibility than traditional banks, but there are drawbacks. So it's important to decide if they will fit your financial needs.
Pros
- Lower fees: Since neobanks don't operate physical locations, they can pass on savings by reducing or eliminating common banking fees.
- Higher rates: That lower overhead also means neobanks usually offer savings accounts with higher interest rates.
- Early access to direct deposits: Fintechs frequently make payments available up to two days early — including payroll deposits, government benefits, tax refunds and pensions.
- Convenience: Users can make deposits and transfers anywhere at any time, with 24/7 online customer support.
- More financial tools: Neobanks offer in-app budgeting tools and real-time spending insight that traditional financial institutions may not have or charge extra for.
Cons
- Limited customer service: With no physical branches, there's no in-person customer support available.
- Fewer product offerings: Neobanks usually have a smaller menu of services, so if you're looking for a mortgage or investment account, you'll probably have to go to a brick-and-mortar bank.
- No guarantee of FDIC protection: Since neobanks are typically not chartered, funds are not FDIC-insured unless the company has partnered with a traditional financial institution.
FAQs
Who uses neobanks?
A quarter of consumers have used a neobank, digital bank or FinTech with bank-like services in the past 12 months, according to a 2023 report from PYMNTS and Treasury Prime, although only 10% of respondents said their primary bank accounts were with digital banks.
Unsurprisingly, neobanks appeal to younger generations raised on the Web: The PYMNTS report also indicated about 55% of Millennials and 45% of Gen Z consumers were very interested in digital banks, while only about 13% of Baby Boomers were. (Roughly 39% of Gen X respondents said they were very interested.)
How are neobanks regulated?
Most neobanks don't have a bank charter or license and cannot operate on their own. They typically partner with a financial institution that does have a charter to ensure deposits are FDIC-insured.
How do neobanks make money?
One of the most common ways for neobanks to make money is through interchange fees, also known as swipe fees, which are paid by retailers when they process a credit or debit card transaction. This is how Chime makes most of its money: Visa collects a swipe fee from a merchant and gives a portion to Chime.
Neobanks can also make money through interest and fees for transactions and subscription services.
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Bottom line
Neobanks are gaining popularity, especially among younger, tech-savvy consumers who care more about flexibility and higher rates than face-to-face interactions and a wide portfolio of financial products. Make sure you fit that profile — and that your money is FDIC-insured — before switching to a neobank.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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Clarification: This story has been updated to clarify that neobanks typically do not have charters.
