Neobanking: The Golden Opportunity
<i>&gt; A neobank is a technology company that provides banking services fully online.</i><p>Not exactly a confidence builder, but go on.<p><i>&gt; Rather than having its own bank charter, a neobank relies on a partner bank or “sponsor bank” to provide the regulatory umbrella for the company to accept customer deposits and provide other similar services as a bank.</i><p>So... it&#x27;s a middleman providing a fancy website for a real bank, but under a different name with minimal regulatory obligations? Now I&#x27;m getting nervous. Does it at least work like a normal bank, where they directly benefit from being a secure place to store money?<p><i>&gt; Although the neobank brings in the deposits, through marketing and other channels, the sponsor bank is the main beneficiary of the interest income.</i><p>Oh dear. Who&#x27;s going to pay for those tech company profit margins, then?<p><i>&gt; Typically, Neobanks have to rely more on the non interest income: account fees, transaction fees, credit cards, debit cards, and interchange fees.</i><p>Fees and predatory loans -- every bank account holder&#x27;s favorite things! What do I get out of this?<p><i>&gt; To attract customers to their services, the neobank must offer the above services in a way that is above and beyond better than what is currently available. That’s where technology comes into play.</i><p>So... a <i>really</i> fancy website?<p><i>&gt; Traditional banks do not have a strong track record of innovation, technology adoption, and digital transformation. Between regulatory concerns, legacy systems, and the costs &#x2F; risks of switching vendors, large technology spend scares most bankers away.</i><p>Yeah, there are good reasons for that. People become very unhappy when they can&#x27;t get their money.<p><i>&gt; Neobanks do not have to worry about that.</i><p>They probably should!<p><i>&gt; They can build something from the ground up, in a slightly different regulatory environment</i><p>If there&#x27;s one thing Silicon Valley is good at, it&#x27;s rebuilding complex, decades-old systems from the ground up in a regulation-free environment without having to relearn lots of historical lessons the hard way.<p><i>&gt; and use technology to serve a smaller population needs.</i><p>Is this &quot;smaller population&quot; credulous people who want to be nickel-and-dimed to death so they can receive targeted advertising while trying to send an ACH transfer?