What lies behind the term “neobank”?
03/12/2020
“Neobank” is a term that has recently become widespread and increasingly used in the press. At first glance, it might seem to refer to a newly created bank. However, this is not always the case.
First, what are they? The colloquial term “neobank” refers to emerging finance companies that are characterised by their intensive use of technology (fintech). Although they offer the same core banking services as traditional banks, such as payment accounts, cards and loans, “neobanks” do this exclusively online, mainly through a mobile app. Their lower costs allow them to charge their customers less. However, the absence of physical branches may be a drawback for some customers who prefer to deal with the bank in person.
Is it correct to call all new companies offering financial services «neobank»?
Not always. On some occasions, the term «neobank» is used—particularly in the media—to refer to new companies offering financial services. However, this use is not always correct, since only banks authorised as credit institutions may use the term «bank» or similar terms (such as «neobank», «banking», «banker», etc.) in their corporate name or other distinguishing signs, as this is a designation reserved by law exclusively for them.
Banks form part of credit institutions (a term that includes banks, savings banks and credit cooperatives).
All credit institutions are subject to the same regulation, and the amounts deposited in them are protected by a deposit fuarantee scheme (Spanish or EU). Additionally, banks and other credit institutions are the only entities that can take repayable funds from the public, an activity exclusively limited to credit institutions.
Therefore, although some entities are colloquially referred to as «neobanks», they may not actually be banks. In such cases:
- They may be fintech financial entities offering payment services through an association with an already established electrónic money institution (EMI) or payment institutuions; or because they have obtained their own EMI or payment institution licence; or because they provide exclusively account information and payment initiation services.
EMIs and payment institutions are also entities supervised by the Banco de España. Unlike credit institutions, they are not affiliated to a deposit guarantee scheme. However, as security, they must deposit their customers’ money in special accounts in banks or invest these funds in safe assets such as fixed-term deposits. - They may be entities that, despite offering financial services, are neither authorised nor supervised by the Banco de España. Bear in mind that it is important to know who the legal person behind a brand is; in the event of any problem, you will have to turn to them.
Before purchasing financial services, it is advisable to check what type of licence each firm operates under, as this determines the type of services they can provide. It is like a driving licence: you may have a licence for cars, but not be allowed to drive trucks or trailers.
How can I check whether an entity is authorised?
You can start by checking the official register of credit institutionsAbre en ventana nueva, maintained and updated by the Banco de España. There you will find the identification data of the institutions supervised by it and by the European Central Bank, under the Single Supervisory Mechanism, along with foreign credit institutions and their subsidiaries authorised to operate in Spain without a permanent establishment.
For entities authorised in another EU country, you may also check the national reigsters of other Member StatesAbre en ventana nueva or the European Banking Authority’s unified electronic registerAbre en ventana nueva.
What if I have a problem? Is it possible to file a complaint? Yes, but with some caveats:
- If the entity operates under a credit institution, electronic money institution or payment institution banking licence, the process is the usual one.
- In the case of foreign EU institutions which are not listed in the Banco de España register, after lodging your complaint with the institution, you may have to resort to an alternative dispute resolution (ADR) body from the country which authorised the institution. This may sometimes entail language or jurisdiction difficulties. The FIN-NET network can help you determine the competent body for resolving out-of-courtAbre en ventana nueva complaints.
- If you suspect that an entity is not authorised by the Bank of Spain to provide the services it offers, or that it is improperly using a reserved designation, you can notify us through our External Whistleblowing ChannelAbre en ventana nueva or through the European Banking Authority’s single electronic registerAbre en ventana nueva.
