In recent years, neobanks have experienced exponential growth, fueled by increasing consumer demand for digital banking and advancements in fintech. As a result, there are now 317 neobanks worldwide, serving a fast-growing customer base that reached over 400 million users in 2025. With no signal of slowing down, the global neobank market is predicted to reach USD 3,406.47 billion by 2032 at a CAGR of 48.6%, offering numerous opportunities for startups and businesses.
For startups and businesses who are going to build one, neobanks offer opportunities like lower costs, easy scaling, and access to niche markets. However, challenges such as regulations, cybersecurity risks, and profitability remain.
This article will give you a guide of what neobanks are, how they work, and what you should consider entering this fast-growing sector.
What is a neobank?
Neobank is a digital-only bank that operates online without any physical branches, so they have to rely on fintech to offer financial services.
Some of the biggest names in this neobanking world include Revolut (UK), N26 (Germany), Chime (USA), NuBank (Brazil), Starling Bank (UK). They serve individuals and businesses with all-in-one financial apps, and offer features like smart budgeting tools, multi-currency accounts, seamless international payments, and cryptocurrency trading. With user-friendly interfaces, low or no fees, and real-time financial insights, they make banking more accessible, transparent, and convenient.
For startups and businesses looking build a neobanking platform, there’s a lot to learn from these industry leaders – both in terms of the features they offer and how they manage their neo banks.
How do neobanks work?
At their core, neobanks offer fully digital banking experience through digital-first platforms, usually via mobile apps, web browsers, or desktop applications. Therefore, they are built to be user-friendly, intuitive, and accessible 24/7 from anywhere with internet connectivity. Whether customers need to create and manage accounts, or get customer support services, everything can be done online.
As for the operational mechanism, neobanks run on modern, cloud-based infrastructure and APIs. This enables them to scale rapidly, protect data, and ensure uninterrupted service for customers worldwide.
They also offer specialized financial products, such as:
- High-interest checking and savings accounts.
- Credit and debit cards for real-time transactions.
- Easy, low-cost international transfers and FX services.
- Financial management tools (budgeting, spending insights, automated savings features, etc.)
Most neobanks collaborate with traditional banks to gain advantages of regulatory compliance, financial infrastructure accessibility, and service offering expansion.
In regions where neobanks are not yet fully regulated, for example – India, this practice is a must. Usually, in India, a credit card company must collaborate with multiple RBI-approved banks or financial institutions to issue a premium metallic credit card, ensuring compliance while enhancing its offerings.
While most neobanks operate under this type of partnership, some prefer operating independently by obtaining their own banking licenses. Accordingly, to protect customers’ funds, they must ensure compliance with regulations by making use of segregated accounts to keep deposits separate from operational funds.
How do neobanks make money?
Unlike traditional banks, neobanks don’t charge account maintenance fees. Instead, they generate revenue through various channels:
- Interchange fees: Every time you pay with a debit or credit card, neobanks earn 1-2% from transaction fees. The more transactions, the higher their revenue.
- Subscription plans: Offer free and premium accounts with perks like investment tools, cashback rewards, and exclusive benefits.
- Lending & interest on loans: Charge fees on currency exchange, international transfers, and crypto transactions, profiting from high trading volumes.
- Foreign exchange and crypto trading fees: Apply fees to currency exchanges and international transfers along with crypto transactions at a low exchange rate while generating revenue through frequent transactions.
- Banking-as-a-Service (BaaS): Partner with fintech startups to provide financial services via API, earning fees for integrations and service usage.
- Partnerships & affiliate marketing: Collaborate with insurers, investment platforms, and fintech firms to earn commissions from referrals and in-app financial tools like wealth management and stock trading.
Are neobanks safe?
Neobanks are safe when they adhere to strict financial regulations with strong cybersecurity measures. These will make sure they are sustainable while minimizing risks related to fraud, cyber threats, and financial instability.
- To remain compliant and protect deposits, most neobanks either partner with licensed banks or obtain their own banking licenses.
- To protect user data, neobanks utilize encryption, multi-factor authentication (MFA), and biometric login, while AI-powered fraud detection manages transactions, detects suspicious activities to avoid.
- To identify cyber threats and data breaches, neobanks conduct regular penetration testing, red team exercises, and incident response planning. However, this practice can involve a third party like a cybersecurity outsourcing service provider.
- To protect customer deposits, many neobanks hold FDIC (or equivalent) deposit insurance up to a certain limit. At the same time, they require customers to verify deposit protection policies before entrusting large sums.
So, what are the opportunities and challenges for startups and businesses that want to build a neobank?
Opportunities
The rise of neobanks has opened possibilities for startups and businesses to address the needs of underserved markets and disrupt traditional banking models. Instead of straight competition with traditional banks, you can focus on very niche customer segments like freelancers, gig workers, SMEs, and underbanked populations. The digital banking solutions can be suitable for their specific needs, such as flexible lending, no-minimum-balance accounts, or real-time payment solutions.
As the overheads are much lower than those at traditional banks thanks to a digital-first model, you can invest your profits in innovation, customer acquisition, and competitive pricing. Beyond this, you can further grow your fintech ecosystem by integrating payment gateways, wealth management services, and crypto trading into the fold, thus providing an all-in-one financial hub that enhances customer engagement and retention.
Challenges
Despite these opportunities, launching and sustaining a neobank is not easy. You either need to get your own banking license or partner with licensed institutions. Both options take time, money, and a ton of effort to meet all the regulations.
Profitability is also a very crucial area since neobanks survive on thin margins. To sustain growth, you should focus on rapid customer acquisition, strategic partnerships, and diversifying revenue streams as much as possible.
In terms of security, neobanks lack physical branches to rely on, thus you may have to invest heavily in fraud detection, encryption, and AI-driven protection to protect user data and funds. This practice is crucial to earn customer trust, as safety, transparency, along with strong customer support are what customers prioritize. Moreover, these factors can give a highly competitive edge against traditional banks.
Neobank regulation and compliance
What is a neobank without a strong regulatory framework? The answer is that it poses a financial risk to both users and itself.
Failure to meet the regulatory requirements or noncompliance can cause neobanks to suffer from heavy fines – such as the £7.6 million penalty imposed by the UK’s FCA in 2022, license revocation, operational restrictions on customer acquisitions and transactions, and even legal action against executives for financial misconduct.
Key regulatory issues
- Approvals from licensing and financial authority.
- Adherence to with Anti-money Laundering (AML) and Know Your Customer (KYC).
Regional regulations
- USA: Compliance with FDIC regulations.
- EU: PSD2 and open banking rules.
- Asia: Stricter regulations, requiring local partnerships for operation.
- India: Collaboration with RBI-approved banks.
Neobank vs. other banking models
With their own unique set of strengths and weaknesses, neobanks function differently than conventional and online banks.
Neobank vs. traditional banks
| Feature | Neobank | Traditional bank |
|---|---|---|
| Operational model | Entirely digital, no physical branches | Physical branches |
| Technology & innovation | Cloud, API, AI, automation, open banking | Legacy systems limited adopt new technologies |
| Cost structure | Lower operational costs and higher competitive of pricing and innovation | Higher overhead costs due to physical branches and infrastructure |
| Service offerings | Mainly digital banking solutions, such as fee-free transactions, budgeting tools, etc. | Various financial services such as loans, mortgages, investment advisory |
| Customer support | Primarily app-based with chatbots and digital assistance | In-person support along with digital services |
Neobank vs. digital banks
| Feature | Neobank | Digital bank |
|---|---|---|
| Ownership & regulation | Independent fintech companies with different regulatory requirements | Often subsidiaries of traditional banks, adhering to the same banking regulations |
| Service scope | Focuses on niche financial products | Combine traditional and modern banking services |
| Customer approach | Agile, innovation-driven, integrated fintech solutions | Balances innovation with regulatory and operational constraints of its parent bank |
| Banking license | Operates without a banking license, partnering with licensed banks instead | Holds a banking license under the parent bank’s regulation |
| Flexibility & innovation | More experimental and adaptable to market changes | Limited by the regulations and strategies of the parent bank |
Key growth neobank trends
As neobanks continue to revolutionize the financial sector, these up-and-coming trends are changing the way we experience banking and financial services. Not only do these solutions enhance accessibility, security, and efficiency, but they also cater to startups and enterprises with a demand for agile financial solutions.
- With predictive analytics, fraud detection, and highly customized financial recommendations, AI-driven personalization offers the potential for improved customer engagement and risk reduction.
- Embedded finance and open banking allow businesses to integrate financial services into existing platforms, thus can expand lending and payments within their ecosystem.
- Integration between conventional finance and decentralized finance (DeFi) through crypto-friendly banks, tokenized assets, and blockchain-based security increases transparency and speed of transactions.
- There would be new B2B neobanking solutions customized for startups and SMEs only with digital-first financial features such as automated invoicing, real-time expense tracking, and custom credit lines.
Conclusion
With neobanks at the forefront of this revolution, the future of banking is unquestionably digital. To boost the evolution of banking and financial services, startups and businesses have never had this sort of chance to use agile technology-based banking models that make customer experience better. Stepping into 2025, it’s no longer a competition between traditional and digital platforms or just a focus on growing global user base, it’s about strengthening relationships with the people who rely on you. Here comes an open question for startups and businesses to grab the chance and lead the waves.
