“Neobanks”: what are they and what do they offer?
“Neobank” is a term that has recently become widespread and increasingly used in the press. It is not a legal term and does not appear in any regulation. You might think a neobank is a newly created bank, seeing as it is formed by the prefix “neo”, meaning new, and the word bank. But this is not the case. In addition to analysing which services they offer and how, we need to compare them with traditional banks since, though at first sight they may seem they are the same, they are not. Let us try and dispel any doubts.
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.
 Basel Commitee on Banking Supervision (19 February 2018). Sound Practices: implications of fintech developments for banks and bank supervisors. Bank for International Dettlements, p. 18.
Are these firms banks?
Not necessarily. Some fintech firms are not banks. 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. That is why it is important to know what authorisations each entity has. Also, you should find out if they offer what you need.
Strictly speaking, only those that have a credit institution licence are banks (i.e. banks, savings banks and credit cooperatives). This means that they are subject to the same regulation as traditional banks and that the amounts deposited in them are protected by a deposit fuarantee scheme , one that is either Spanish or from another EU country. Additionally, they are the only entities that can take deposits from the general public, an activity exclusively limited to credit institutions.
Under what arrangements do non-banks operate?
They are normally associated with an electrónic money institution (ELMI) that is already established in Spain or abroad, or else choose to apply for the ELMI licence themselves. In some cases they operate as payment institutuions or they provide only account aggregation and payment initiation services. 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. ELMIs, unlike credit institutions, 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.
How can I find out what type of entity I am dealing with?
You can start by checking the official register of credit institutions, which is 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 States or the unified electronic register of the European Banking Authority.
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-court complaints.
Knowing who you are dealing with improves your financial knowledge, protects your rights and provides channels to solve potential conflicts.