Investing Explained: What you need to know about neobanks

In this series, we’ll break down the jargon and explain a common investing term or topic. Here are the new banks.

what are these?

These are the banks that have emerged this century that aim to end the dominance of traditional names.

They have funky names such as Atom, Kroo, Monese, Monzo, Revolut and Starling, and work via apps rather than branches – and are seen as important to Britain’s future as a forward-looking global financial services hub.

These “fintech” banking platforms provide most banking services, but some do not accept deposits or provide loans because they are not yet fully licensed.

Why are we listening now?

HSBC is launching Zing, an app for frequent flyers, which will allow users the ability to hold money in ten currencies.

New Sensation: New banks emerged in this century with the aim of ending the dominance of traditional names

New Sensation: New banks emerged in this century with the aim of ending the dominance of traditional names

The move is seen as a response to increasing competition from rapidly growing neobanks. This is thanks to their ability to use the wealth of information they collect about customers’ finances. Traditional competitors face difficulties in exploiting this data due to their outdated systems.

Many people have a second account at a neobank for convenience and to save costs when spending abroad. With a neobank card, you can deflect the foreign currency transaction fees charged by High Street players.

Aren’t they called competitors?

Yes, but neobanks are the preferred term now. Names starting with “n” are probably in fashion. After all, we call fame-seeking kids “Nibo” celebrity kids.

Who are the biggest players?

Monzo – known for its “hot coral” debit card – has eight million customers, while Starling has four million. Both are fully regulated, meaning they are authorized by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) through which the Bank of England supervises banks.

Revolut has eight million customers in Britain and a further 30 million in other countries, but has not yet obtained a UK banking license that would allow it to offer more services to customers.

Why hasn’t Revolut gotten a license yet?

Revolut may be Britain’s largest private technology company. But what is controversial is that its license application has been delayed due to auditing problems and objections to the shareholder structure.

The PRA has asked Revolut to divest preferred shares, which were acquired by Japanese conglomerate SoftBank and others during a 2021 financing round, which valued Revolut at $33 billion. SoftBank has been slow to give its approval, but agreement to offer a single share structure may be close, or so reported, allowing the license to be granted.

How does a new bank operate without a full banking license?

Revolut has an e-money license. Client funds are not protected under the Financial Services Compensation Scheme (FSCS) but are held in closed accounts and may not be lent out. In the event of a disaster, customers can file a claim on these accounts.

Can I invest in these banks?

Neobanks are not publicly listed, as they are largely funded by institutions, although some Monzo clients own shares. There have been rumors for a while that Starling is set to float.

But that may not happen as it searches for a permanent CEO following the resignation of founder Anne Boden.

(Signs for translation) Daily Mail

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