Planning to Open a Foreign Bank Account? Consider Neobanks!

Neobanks is a comparatively new word in the financial service industry. Both private individuals and corporate entities are drawn to neobanks. Setting up an account with such a bank is an especially attractive opportunity if you are looking to set up a foreign bank account. Most neobanks open accounts remotely, which is seldom the case with traditional banks. Probably, neobanks can replace traditional banks in the future, who knows? The fact that it is extremely easy and comfortable to use neobanks cannot be denied.  

Below we describe the essential characteristics of neobanks and offer some criteria that should guide your choice of a neobank.

What is a neobank? Definition and key characteristics

Neobanks are also referred to as ‘Internet banks’, ‘digital banks’ or ‘online banks’. They do not usually have physical offices and they work totally online. Hence their ability to reduce their operational costs and consequently offer banking services at lower costs.

A neobank can be an independent licensed organization authorized to make money transactions and provide other banking services. Alternatively, a neobank can act as an intermediary between a traditional bank and its customers.

All clients’ interaction with a neobank takes place online. Some neobanks also use telephones for client identification and message exchange.

Online banking service became available to the masses approximately in 2015. The term ‘neobank’ was first used in 2017 and it is still in use today. Initially, neobanks were poorly trusted as they were seen as experimental enterprises. However, some neobanks offered loans to customers and this fact helped arouse more interest to the financial institutions of a new kind.

How do neobanks make money?

There are several ways in which a neobank can earn an income:

• Commissions on transactions including international transactions;
• Premium accounts;
• Banking services for corporate clients.

Those neobanks that give out loans make money on the interest too. Each neobank will have its own methods of earning an income.

Why are neobanks so popular? Their main advantages

Ironically, the COVID-19 pandemic helped neobanks to promote themselves greatly. People started doing many things online including making and receiving payments. Neobanks service their clients remotely, which makes them a perfect solution when you cannot leave your house or apartment for the fear of catching the virus. You should also take the following advantages in consideration:

• Your account with a neobank is accessible 24/7 and you can deposit or withdraw money at any time you wish.
• Most neobanks are international financial institutions and they provide services to people from different countries. In particular, there are some online banks in Europe that cater to both EU citizens and foreigners.
• Their services are cheaper in comparison to traditional banks because their operational costs are lower.
• You can acquire a bankcard from a foreign bank without ever going to a foreign country. This used to be impossible before.
• Innovations are adopted quickly and this allows neobanks to come up with new interesting offers in a fast manner.
• Normally, neobanks have handy online applications with user-friendly interfaces.
• You never have to stand in line when using a neobank!
• Even though there are several national digital banks, most of them are international. This means that making an international money transfer is quite possible if you have an account with a neobank.  

Probably the most important downside that neobanks have is the fact that you cannot talk to a bank manager face to face if there is a problem with a transaction or if you are unhappy with the quality of services that the bank provides. On the other hand, you can still discuss problematic issues with a bank officer on the phone or by email.

Trends in the industry

The number of digital banks has been growing fast over recent years. This is attributable to the following main factors:

• Growth of popularity of online services in general;
• Pandemic-related restrictions;
• Simplicity of use.

Many online banks are headquartered in Europe and in Great Britain. The latter country offers especially beneficial fiscal conditions to online service providers. 

Some popular neobanks

Below we provide the names of several neobanks where you could apply for services and point out the most substantial advantages that each of them have. Please note that our list of neobanks is far from exhaustive.

Wise

It is a super-international neobank: you can make money transfers to 80 countries of the world in a great number of national currencies. Besides, the commissions are low. You cannot take out a loan from Wise though.

Revolut

Revolut has an exceptionally user-friendly interface. You can use your Revolut account to make investments in the New York stock exchange.

N26

N26 offers a superb mobile banking application and, unlike most other online banks, it has physical offices in several EU countries. Order a debit card from N26 and you will have to pay almost nothing for using it.

Bunq

Company owners care for the environment and sponsor various activities to fight global warming. Banq is always among the first neobanks to employ all the latest developments in the Fintech industry. You will be paid an interest if you open a savings account with the neobank.

There are more neobanks that offer attractive service conditions including Monese, PayPaysera, PSTNET, Monzo, and others. You have a great choice indeed if you would like to set up an account with a neobank.

How to choose a neobank: main criteria

Because neobanks are a relatively new type of financial institution, you should approach the task of choosing a neobank with care. Whether you are considering a neobank from the list above or some other digital bank, we suggest that you make a choice by the following criteria:

1.               Consider the neobank’s reputation. Find out what other people say about the neobank under your consideration. Surf the web and read reviews, reports, clients’ feedback, etc.
2.               Check the client support service. You can talk to a bank manager on the phone or use an online chat as a means of communication before setting up an account with a neobank. In this way, you can assess their competences and the speed of their reaction. Try to ask a question or request assistance at night: this will show how fast the bank managers are going to respond to your queries.
3.               Check the list of banking services. In the case of neobanks, this is especially important because all of them have dissimilar lists of services. You don’t want to set up an account with a neobank that does not provide the service that you need.
4.               Assess the term of the company’s existence. The longer the neobank has been in existence the better, of course, even though newly established neobanks often offer some exceptional service conditions to attract clients.
5.               Assess the user-friendliness of the interface. Sometimes this opportunity is available before you open an account with an online bank while at other times it is not. In the latter case, try to find some screenshots on the web and see if the interface is easy to use.
6.               Find out about the tariffs and commissions. Again, different neobanks will have different tariffs and commissions. Please note that the account maintenance costs will largely depend on what kinds of banking services you want to use.
7.               Find out about cash withdrawal limits and other restrictions. You’d better have this information beforehand to avoid finding yourself in an awkward situation when trying to withdraw cash from your plastic card issued by the neobank.

If the neobank that you are considering passes all these tests, go ahead and set up an account there. You won’t regret it!