What the teller is a neobank?
“They are financial technology companies that have one or more chartered banks operating behind the scenes,” said Dan Roda, CEO of Abaca, a cannabis-niche neobank in North Little Rock. “We’re digitally delivering banking services in partnership with those.” (See Neobanking: Abaca Reads Smoke Signals.)
Mostly startups, neobanks offer digital and nontraditional banking services through an app or platform; they have no physical branches. “Neos,” the root word, is Greek for “new.”
“This is something that’s proliferating, and for financial institutions, it’s both a threat and an opportunity,” Roda said. “The first three months of the pandemic saw a 10-year spike in adoption of digital banking technology. This behavioral change came perhaps a decade sooner than it would have if it had happened organically.” The new acceptance of digital banking opens the door wide for neobanks, which tend to serve specific industry niches, Roda said.
“We like to say we’re not a startup anymore; we’ve started up. We’re generating revenue and growing every quarter, but we still have a lot of growing to do, so we’re expanding our way across the country, finding the right partners, and being there at the right time.”
According to a March report by Global Market Insights Inc., neobanks are expected to command a $600 billion segment of the banking market by 2028, up from about $45 billion last year. The digital tools can also cut partner banks’ capital and operating expenses as neobanks take over the costs of digital processes and technologies.
Sometimes called “challenger banks,” companies like Abaca have been likened to digital disruptors across the economy, from Uber to Airbnb. Exton Consulting of Paris estimated in December 2020 that more than 250 neobanks were operating worldwide.
“Neobanking services help businesses minimize the complications in managing transactions and cash payments across other partner banks,” the Global Market Insights report said. “Moreover, they provide improved liquidity management capabilities along with control and convenience in major banking processes.”
It also noted that with the adoption of mobile technology, customers have made neobanking one of the most popular payment methods in North America. Even traditional banks have introduced neobanking offerings like Marcus by Goldman Sachs and Finn by JP Morgan Chase.
“Soon, there are going to be billions of dollars in new volume opened up to the credit card networks, and consumers certainly prefer to pay with credit cards for just about any service,” Roda said. “We certainly intend to be there to help all of our customers open up their businesses to the credit card networks immediately.”