Over the years, the banking industry has shifted towards a new generation of banks: virtual banking, also known as the new bank. While conventional institutions offer face-to-face services and physical structures, neo-banks are providing modern and convenient solutions. Here, we will make a simplified comparison between a neo-bank and a traditional bank and discuss the aspects with which you can identify the right choice for yourself.
Convenience and Accessibility
Neobanks are entities formed specifically as online banks; they can be accessed solely through a mobile application or a website. Considering the lack of physical presence, neo banks allow convenient 24/7 operations with the accounts needed, fast money transfers, and notifications. In this regard, traditional banks might not be as fast or as convenient, but they do provide branch facilities so the customers can sit down and see the bank staff if necessary, especially for complicated matters.
Traditional banks also provide more services. For instance, account assistance is done physically; they engage small businesses in special services and offer safety deposit services. But if you’re a person who likes to handle expenses through the application, then the convenience provided by a neo-bank may be an important benefit.
Fees and Costs
The primary value proposition of neobanks is that they are relatively low-cost. Neobanks do not need to go into branches, which they offset by charging very little as service costs. Among the most popular benefits include reduced transaction costs, no minimum amount required to start an account, and no monthly maintenance fees. This makes them cheaper for customers who are inconvenienced by normal bank charges.
Conversely, traditional banks always charge more significant fees, such as monthly service charges, overdraft charges, and ATM charges. Even though most conventional banks offer options for reversing the fees, such as maintaining a specific balance or receiving direct deposits, their cost is relatively higher than that of the neo-banks.
Customer Experience and Service
As for customer service, the advantages of neo-banks and traditional banks are a matter of preference. These new-age financial institutions are famous for their easy-to-use digital applications and rich technology offerings, such as budgeting tools, spending analytics, and instant money transfers. Customers generally interact with them through chat and e-mail, which may be suitable for those who use digital communication methods more often.
Nonetheless, traditional banks offer a qualitatively different service involving personal consultation. If you like face-to-face communication, particularly for complaints or business transactions, it may be better to stick with a traditional bank. Another disadvantage of traditional banks is that they offer a broader range of financial services, including loans, mortgages, and credit cards, thus enabling customers to transact all their services with one provider.
Security and Trust
While neo-banks and traditional banks have the same regulatory obligations regarding finance, the latter benefit from having been established and recognized for decades. Quite a number of neo-banks collaborate with traditional financial players to ensure that customers' deposits are under FDIC. Still, such banks may not have the same level of trust among clients.
