Big banks present a whole range of problems and inconveniences to customers, ethical and environmental issues aside.

From having to go into brick-and-mortar branches and wait in lines to take care of minor administrative tasks to struggling to find an ATM that you can actually take money out of or deposit money into, traditional banking practices are quickly becoming outdated.

Are you sick of getting paid next-to-nothing in interest and paying monthly service or transfer fees just so that a bank can use your money to make its own investments? Us too… keep reading.

Fortunately, there’s a new class of banks on campus, appropriately called neobanks. These neobanks are answering the public’s calls to overhaul the financial services sector and streamline the way people handle their personal finances.

What Is a Neobank?

A neobank, sometimes referred to as a challenger bank, is a financial technology company that is built on top of traditional banking software.

Neobanks place an emphasis on online banking, customer experience and digital banking services. More often than not they are online-only financial companies.

These types of financial institutions are also referred to as challenger banks because they are challenging the status quo of traditional banks.

By combining new technology with legacy systems and infrastructure, most neobanks are providing better technology, new financial services products and enhanced customer experiences. The rise of neobanks around the world has largely been rooted on the desire to give power and choice back to consumers when it comes to financial services, traditionally a slow or never-moving industry.

Neobanks also typically offer greater values or purpose-based alignment and better returns for their customers, with all the same benefits of FDIC insurance and major card processors.

Neobank fast facts:

• Eliminate the need for physical branches
• Optimized for digital/mobile banking with easy account opening
• Offer many of the same services as big banks (i.e., cashback checking and high-yield savings accounts)
• No physical paperwork
• Provide access to a wide range of ATMs
• Often offer additional services, such as free financial education and budgeting tools

How much is a big bank logo on your bank statement worth to you?

Chances are that when you opened your first bank account you chose your financial institution out of 2-3 big banks in your local area, the one that gave you a mortgage, or the account your parents opened up for you when you were a kid.

There is a relatively good chance you are banking with Chase, Bank of America, Wells Fargo or Citibank. Statistically, about $1 out of every $2 in the United States is deposited into one of these financial institutions.

If you’re a customer of the Big 4, we don’t blame you. For years, people have had very limited options when it comes to choosing a personal financial institution, especially when they need something with a local brick-and-mortar branch that they can easily access. Moreover, these banks have gotten as bloated as they are by gobbling up local branches and banks for the last 100+ years.

However, depositing funds with big banks comes along with a whole range of ethical issues, especially if you care about the environment and climate change.

When you deposit your money in a bank like Chase, Bank of America, Wells Fargo or Citibank, it doesn’t just sit there. In exchange for keeping your funds safe and providing you with financial services, these banks invest it and lend it out in order to make themselves money.

This is fine, and it’s something that every financial institution does, but the problem is that big banks are traditionally huge backers of environmentally harmful initiatives, such as fossil fuel extraction and big oil pipelines that displace BIPOC communities. They also make their customers jump through hoops and then charge them more than they should to perform the most simple tasks simply because it’s how they’ve always done it.

So, if you’re someone who wants to make an impact with your personal banking, what can you do? Well, with the rise of neobanks, you have more options than ever when it comes to finding a new bank that aligns with your personal values.

Neobanks vs traditional banks:

• Traditional banks historically support big oil and other environmentally harmful corporations
• Traditional banks often over-charge for monthly service fees and pay their customers the lowest interest
• Traditional banks have a wide variety of legacy financial products that may or may not be necessary for most customers
• Brick and mortar banks offer in-person assistance
• Neobanks focus on innovative financial products that seek to provide additional value to their customers
• Neobanks focus on customer convenience and values-alignment
• Neobanks typically have lower fees (or no fees) and pay higher interest and rewards
• Neobanks are online only
• Neobanks may not have as wide of a product suite as legacy big banks

How Many Neobanks Are There?

The exact number of neobanks is hard to pin down, as there are more popping up constantly and the exact definition of a neobank can vary from country to country.

But, according to most figures, there are more than 200 neobanks as of early 2022, with many of them located in the United States and the United Kingdom.

Examples of Innovative Neobanks in the US

Atmos Financial

Atmos is a fast-growing, online-only neobank dedicated to clearing the air of CO2, one deposit at a time. It was created to counter the ‘do nothing and ignore it’ stance that big banks take when it comes to climate change. While many of the big banks are the largest enablers of emissions and supporters of fossil fuel extraction, Atmos uses every dollar to reduce global emissions to ensure your money is improving the health of the planet.

When you check your account balance, you can actually see the impact of your money in terms of the amount of CO2 it is helping to remove from the atmosphere through things like renewable energy, energy efficiency overhauls, electric transportation, green construction, and regenerative agriculture.

In addition to high-yield savings accounts and checking accounts, Atmos provides multiple options for donating to environmental nonprofit organizations, including the ability to round up on everyday purchases or make fee-free automatic monthly donations.

Atmos is equally focused on your own financial health, offering nationally leading rates and rebates with no monthly fees and a best-in-class customer experience. You can also earn from 2-5% cash back on purchases from hundreds of sustainable brands and businesses when you use your Atmos cash-back checking account debit card. You can earn cash back on everything from electric mobility products and sustainable apparel to eco-friendly home goods, restaurants and food.

Chime

Chime is another and one of the largest US-based challenger banks providing fintech services, including debit and credit card services with low fees and competitive interest rates.

Chime’s main goal is to make managing personal finances easy and equitable for everyone. Instead of profiting from their clients, Chime aims to profit with them.

Varo

Like Chime, Varo is another online bank focused on bringing financial services to the underbanked.

Current

Current is a neobank that specializes in offering modern financial services to a younger demographic (the average age of their users is 27).

In addition to challenger bank staple banking services like cash-back checking accounts and fee-free ATMs, Current offers teen banking services to help young people get a head start on their personal finances.

What types of products do Neobanks offer?

Neobanks are starting to create a wide variety of innovative banking products. The most common services include:

• Savings accounts
• Direct Deposit
• Checking Accounts with no minimum balance requirements
• Debit card  
• Individual retirement accounts
• No monthly maintenance fees and no overdraft fees
• Personal loans
• Credit cards
• Early withdrawals
• Deposit cash

Common Concerns for Neobanks

Common questions and concerns arise when it comes to neobanks. Here are just a few:

Will my money be safe?

Yes, while you’ll want to make sure the neobank you're considering has FDIC insurance and takes security seriously, your cash deposits are as safe with a neobank as they are with one of the bigger institutions. Neobanks build their software on top of legacy systems, so while customer experience and products might feel different, the same protections are typically in place.

What if the neobank doesn’t offer every product I might need?

Neobanks are young in comparison to traditional banks, so it is true that they offer a smaller suite of products than their legacy counterparts generally speaking. If something like check-writing is a feature you need to have, but not one that the neobank offers, you may wish to split your banking services between a few different providers. There is no reason you can’t have multiple banking relationships to take advantage of the best products from each FI. For example, parking your cash deposits in a high-yield savings account is a great way to take advantage of a neobank.  

What happens if the neobank goes out of business?

This is one of the most common concerns from consumers not yet familiar with neobanks. The important thing to remember is that your money is never at risk. In order for your money to be FDIC insured (and you’ll want to ensure that it is!), the account and routing numbers you are given are actually issued by a traditional bank with a bank charter (partner bank), not the neobank itself. That means if the neobank ever goes out of business, your money is still safely held by  and available on demand.

Want To Join a Neobank? Here’s How To Switch Banks

Now that you know more about neobanks vs traditional banks, are you ready to take the leap and join a neobank?

If so, the first thing you’ll need to do before switching banks is decide which neobank is right for you. A good way to do this is come up with a few options, then review their websites to find out what their mission and values are and if they offer the products you will need.

However, since most neobanks offer similar services, you should ideally pick one that aligns closely with your personal values.

For example, if you care about our planet and you want your deposits to have a positive environmental impact, Atmos Financial is likely the best option for you.

After that, it’s just a matter of applying for and opening a new bank account, transferring your funds, setting up any direct deposits/automatic payments, and closing your old bank account. It’s as easy as that.

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