Neobanks vs challenger banks

The so-called Neobanks and Challenger Banks emerged after the 2008 crisis, and have had an exponential growth in the last decade, with a Compound Annual Growth Rate (CAGR) of over 40%. These new players were able to take advantage of the low esteem in which traditional institutions were held, offering users a fully digital experience, simplifying procedures and drastically reducing costs.

Although both types of FinTechs have similar products, there are considerable differences between these new banking options and the features they offer.

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What is a Neobank?

Neobanks are FinTech startups that offer a 100% digital experience to their users, providing faster and more efficient solutions. In addition, they emphasize transparency and reduced commissions.

Although the services they offer are very similar to those of traditional banking, Neobanks do not have a banking license, so they depend on a partner bank to provide regulatory guarantees and financial solvency.

The e-money license under which Neobanks operate only allows them to make payments and bank transfers, which limits their portfolio of services.

Some examples of Neobank in the market are: Rebellion Pay, Bnext, and Atom Bank.

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What is a Challenger Bank?

Challegers Banks are also FinTechs, but unlike Neobanks, they have a banking license that allows them to offer their users all the traditional banking services, combining new technologies (Big Data, Machine Learning or Artificial Intelligence) at a lower cost.

Its target audience is Millennials, young people between the ages of 16 and 35 who are looking for digital alternatives with greater advantages and facilities.

Some of the most successful Challenger Banks are N26, Revolut and Monzo.

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How do they differ?

The main difference between Neobanks and Challenger Banks is the license they hold. While Challenger Banks are considered banking entities, Neobanks must offer their services through the collaboration of an authorized banking entity.

While it will be up to each client to choose which of these two options best suits their needs, it is clear that Neobanks and Challenger Banks are revolutionizing traditional banking and are becoming a huge sector within the financial services industry.

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