Neobanks and Their Impact on Traditional Banking Models
- On the Money Magazine
- Jul 28
- 2 min read
Rohin Shah, Latin School of Chicago, Sophomore, Fall 2024
A neobank is a digital-only financial institution that operates without physical branches, relying solely on mobile apps and websites. While similar to digital banks, neobanks typically function under a partner bank’s license, rather than holding their own, yet still offer most traditional banking services, such as debit cards and checking accounts. These innovative financial technology companies attract consumers by offering easy access to banking services through their phones and computers.
Neobanks have experienced rapid growth in recent years, driven by their ability to meet the needs of modern, tech-savvy consumers. “As a young person, I look for convenience and am less focused on the size of the bank,” says Ari Fayne, a junior at the Latin School of Chicago. “I appreciate the ease of being able to do everything on my computer instead of going to a physical banking location.”
According to a consumer research report, 72% of all participants say they prefer to manage all their finances online or through a mobile app. Among different age groups, Millennials most prefer online and mobile at 85%, followed by Gen Z at 79% (MX, 2025). Features such as fee-free checking, savings accounts with competitive interest rates, budgeting tools, and early access to paychecks attract new customers. Neobanks operate with significantly lower overhead costs, which allows them to offer competitive rates.
However, not all neobanks offer the same level of fund protection. Some fintech platforms lack full FDIC insurance, meaning that in the case of a platform collapse or failure, consumer funds could be difficult to recover, and the recovery of funds would not be guaranteed. Consumers should research carefully to ensure platforms are secure and legitimate, as well as to consider if a fully insured product may be a better fit for some or all of their funds.
To stay relevant, many traditional banks are adopting technological structures, expanding mobile offerings, and rethinking their approach to personalized financial services to compete with these digital-first competitors. Mary Wisniewski, Senior Editor at Bankrate and Host of the “Money Isn't Everything” podcast, adds, “There's this creativity that [neobanks] can explore. I think it pressured banks and credit unions to be better with the features that they offer.”
The rise of neobanks has marked a transformative shift in the banking industry—globally, the neobanking market is projected to grow from $143.29 billion in 2024 to an astounding $3,406.47 billion by 2032, reflecting a compound annual growth rate (CAGR) of 48.6% (Fortune Business Insights, 2024). As advances in financial technology continue, the potential for neobanks to evolve and introduce even more innovations remains strong, promoting further competition among financial services companies.
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Interviews:
Mary Wisniewski, Senior Editor at Bankrate and Host of the Money Isn't Everything Podcast
Ari Fayne, Student at the Latin School of Chicago
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