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If traditional banks and credit unions seem a bit cumbersome and outdated for your banking needs, consider opening an account with the latest star in the fintech industry: neobanks.
These tech-savvy, digital-savvy darlings have a lot to offer… but they’re not banks as you have known them. Let’s take a closer look at how a neobank might be the financial services solution you are looking for for your business.
What is the meaning of Neobank?
Neobanks (also known as challenger banks) offer online business bank account services, personal accounts, or both. They don’t have physical branches like a traditional bank, and all transactions are done online.
How neobanks work
Neobanks offer digital banking services, usually a personal or business checking account. Some also offer personal or business savings account services, and some even offer small business loans.
Unlike a physical bank, neobanks do not allow you to deposit cash, since all services are online. You can transfer money between accounts, use a debit card, and send payments.
What is the advantage of a neobank?
When it comes to financial services, fees are the biggest issue for many businesses. Fees of $ 25 per month may add up for small businesses. But, thanks to financial technology, neo-bank providers are able to offer services at lower fees or even eliminate them altogether.
Advantages and disadvantages of neobanks
While there are many advantages to the financial products offered by a neobank, there are also a few disadvantages to be aware of.
Advantages
When it comes to budgeting for small businesses, neobanks do the trick. Many don’t charge a monthly fee (they earn their money from merchant services and fees for using off-grid ATMs). You can even find free business checking account options!
For those who offer savings accounts (like Bluevine), interest rates may be higher than those charged by traditional banks. Given the low overhead costs associated with managing an online bank only, the neobank can pass these savings on to its customers.
Neobanks offer the financial services you’re used to, like direct deposit, debit cards, and bill payment, so they’re familiar and easy to use. Many allow you to use ATMs nationwide for free.
Finally, neobanks are incredibly easy to open an account with. There is no requirement for how long your business has been in business, so startups can qualify. (Find out how to open a business bank account here.)
The inconvenients
If you are looking for a one-stop-shop, neobanks may not deliver. Unlike traditional banks, most neobanks are not lenders (although some are), nor do they offer the full list of services that you will find at traditional banks.
Be aware that not all neobanks are covered by FDIC insurance, which means if things go wrong with the bank, you are not guaranteed to get your money back. There is some inherent risk involved.
If you need to make cash deposits, this bank is not for you. You’d better go to a traditional bank or a credit union with a local branch.
What is the best neobank?
If a neobank is right for your business, know that the best business checking account is one that has everything you need. Here are some of the neobank financial institutions we recommend.
Some neobanks, including Monzo and Starling, cater to other countries such as the United Kingdom. Here are some of your options here in the US
Carillon
Carillon offers several personal accounts free of charge, including an expense account and a savings account. There is also an account to help you build your credit if your credit scores are low.
The account offers free overdraft protection, a debit card and an award-winning mobile app.
Revolution
Revolution offers both business and personal accounts, as well as budgeting and analysis tools. Revolut also offers Cash Back from the brands you love.
Its business services include global money transfers, recurring payment management, and bookkeeping.
Varo
Varo offers both personal checking and savings accounts with no credit checks or monthly fees.
The neobank also offers cash advances of up to $ 100 and a secure credit building account. Varo also offers up to 15% cash back on certain purchases.
Blue vine
I already mentioned Bluevine’s high interest account (you can earn 1% on your business balance). The néobanque also offers business loans, including invoice factoring and lines of credit.
Who is a Neobank Good for?
If you’re comfortable with technology, including a mobile app to manage your finances, a neobank might be a good choice.
If you’re okay with having fewer features than you’d get with a traditional bank (with the benefit of low or no monthly fees), take a look at them.
On the other hand, if you need to make cash deposits for your business or have complex banking needs, you might be better off going with a traditional bank or a credit union.
Why are NeoBanks so popular in India?
In India, online banks like Niyo and Open are experiencing a rapid increase in the popularity of business and personal finance. Why is that?
The banking sector is there heavily influenced by bureaucrats and has its share of corruption. Neobanks stepped in to make it easier for businesses to have a place to keep their money safe, open business credit cards, and get business loans.
India is one of the major users of fintech services, and generally the rest of the world follows, so we can expect more neobanks to sprout up here in the United States in the near future.
Nav’s verdict: the neobanks
If you’re interested in online banking and you like taking advantage of technology, a neobank could meet your business (and maybe even personal) banking needs.
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