Neobank or “neo bank”: what it is, features and advantages
Ten years ago, the word “neobank” barely appeared outside fintech circles. Today, fully digital players manage a large share of young customers across Europe, are starting to offer mortgages and loans, and compete head to head with traditional banking in attracting new accounts. The phenomenon is no longer marginal and is already shaping the digital strategy of every institution in the sector.
What is a neobank?
A neobank is a financial institution that operates entirely online, with no physical branches or in-person counters. The entire customer relationship takes place through a mobile app or website: opening an account, making transfers, signing up for products, checking transactions or resolving issues.
This model is based on a much lighter cost structure than that of a traditional bank, with no branch network, no in-person staff and automated processes. This allows neobanks to offer accounts with no maintenance fees, free debit cards and features that, in traditional banking, are often tied to paid products.
Not all neobanks are the same. Some operate with a full banking licence, others with an electronic money institution licence, and some simply act as a commercial brand supported by the infrastructure of a traditional bank. The difference matters, especially when it comes to knowing whether your money is covered by a Deposit Guarantee Scheme.
The difference between a neobank and a challenger bank
In the fintech ecosystem, there are two categories that are often confused.
Neobanks, strictly speaking, do not have their own banking licence. They operate under an electronic money institution licence or as a commercial brand that relies on the infrastructure of a traditional bank to process transactions. Their main role is the customer interface and the digital experience. Wise is a typical example of this model: customer money is held in segregated accounts and does not form part of the company’s own balance sheet.
Challenger banks, on the other hand, do have a full banking licence, supervised by a national or European regulator, and their deposits are covered by the relevant Deposit Guarantee Scheme up to €100,000 per customer. Revolut, N26 and Trade Republic operate as challenger banks across the European Union, with local IBANs and deposit protection. Most of them started out as unlicensed neobanks and expanded their model until they obtained banking authorisation.
This distinction is not minor. When deciding where to put your money, knowing whether you are dealing with a pure neobank or a challenger bank determines the level of protection you have if the institution runs into problems.
Advantages and limitations compared with traditional banking
The advantages of a neobank largely come from its digital model.
In most cases, there are no maintenance fees, debit cards are free, currency exchange is offered at the interbank rate, and the app brings together account, cards, savings, investment and sometimes crypto in one place. Account opening is completed from your phone, with no need to go anywhere, and spending control features (automatic categorisation, instant notifications, category budgets) are much more developed than in traditional banking.
The European Union’s Digital Finance package, adopted in 2020 and expanded since, has consolidated the regulatory framework for fintech operators across the single market. Rules such as the Markets in Crypto-Assets Regulation (MiCA), the Digital Operational Resilience Act (DORA) and the revised Payment Services Directive have given neobanks a clearer legal ground to scale across borders, while traditional banks have struggled to match that pace in their digital divisions.
The limitations are also clear. Customer support is entirely digital, which can be a problem for complex issues or for users who are less comfortable with technology. Mortgage products and medium- and long-term financing are still limited in many neobanks, although Revolut has already announced its entry into mortgages in several European markets. And in institutions without their own banking licence, funds are not covered by the Deposit Guarantee Scheme, although they must be held in segregated accounts separate from the company’s own assets.
Another point to consider is the ecosystem of complementary products. A neobank gives you an account, a card and sometimes investment services, but if you also receive or spend crypto, it often falls short. That is where solutions such as a prepaid card designed for cryptocurrencies fit better, allowing you to load crypto and pay in euros without going through an exchange for every transaction.
The most relevant neobanks in Europe
The European map of neobanks and challenger banks is dominated by a few players with an established presence in multiple countries.
Revolut, headquartered in the United Kingdom and operating with a European banking licence from Lithuania, is approaching 50 million customers worldwide, most of them in Europe. Its offer combines a multi-currency account, currency exchange at the interbank rate, investment in stocks and crypto, and an app with features that are still uncommon in traditional banking.
N26, the German neobank with a full banking licence supervised by BaFin, has more than 8 million customers across Europe. It offers a free current account with a local IBAN in the main euro area markets, a debit card with no fees, and has expanded its offer with personal loans and ETF investment products.
Trade Republic is the player that has grown the most across Europe over the past two years. Operating under a German banking licence, it has expanded its coverage with local IBANs and Deposit Guarantee Scheme protection up to €100,000 per customer via the German scheme.
Other relevant names include Bunq (Netherlands), Wise (United Kingdom, electronic money institution model) and Monzo (United Kingdom, which in 2026 registered its Irish subsidiary as a community branch to expand across the European Union). At national level, digital divisions of traditional European banks are also active in the same space, competing with pure neobanks on the same ground.
When it makes sense to use a neobank and when it does not
The decision is not binary. A neobank can complement your main account, cover specific needs or replace it completely, depending on your profile.
It makes sense to use one if you travel often and want to pay in foreign currencies without extra fees, if you are looking for accounts with no fees and spending control features from the app, if you want to invest in stocks or ETFs with low fees, or if you want a secondary account to separate money by category (travel, subscriptions, savings). In any case, the choice should fit within a personal finance plan that defines the role of each account and what you are going to use it for.
It is not the best option if you need in-person support, if you are going to take out a mortgage or loans with very specific conditions, or if the level of digitalisation feels uncomfortable to you.
For very specific profiles (people without a bank account, newcomers to a new country without established residency, people who receive income in crypto or those who only need a card for digital expenses), an alternative outside the neobank model may make more sense. A prepaid card without a bank account covers these needs without requiring an account opening process or bank verification, and works as a bridge while the rest of the paperwork is completed.
The neobank phenomenon has gone from a one-off disruption to a consolidated model within the European financial system. It no longer competes with traditional banking from the sidelines: it competes on the same ground, with comparable products and volumes that are beginning to move the market. Deciding where to put your money (traditional bank, neobank, challenger bank or another fintech alternative) now depends more on what you want to do with it than on what feels more modern.
Frequently asked questions
What is the difference between a neobank and a traditional bank?
A neobank operates entirely online, with no physical branches and all operations handled from an app. A traditional bank combines digital channels with a branch network and in-person support. Neobanks usually have lower fees and more advanced spending control features, while traditional banks offer a wider range of products and in-person assistance.
Do neobanks have a banking licence?
It depends on the case. So-called challenger banks have a full banking licence supervised by a national or European regulator. Others operate under an electronic money institution licence or as a commercial brand supported by a traditional bank. The difference matters when it comes to knowing whether your deposits are covered by a Deposit Guarantee Scheme.
Which neobanks are most used in Europe?
Revolut leads by customer volume, followed by N26, Trade Republic, Bunq, Wise and Monzo. In each national market, digital divisions of traditional banks also compete in the same space with locally branded digital products.
Is it safe to keep money in a neobank?
If the neobank has a full banking licence, deposits are covered by the Deposit Guarantee Scheme up to €100,000 per customer (the scheme of the country where it is licensed applies). If it operates only as an electronic money institution, funds must be held in segregated accounts separate from the company’s own assets, but they are not covered by the traditional guarantee scheme.
Can I use a neobank as my only account?
Yes, as long as its services cover your needs. If you carry out simple operations and do not need in-person support or complex financial products, a neobank with a banking licence can fully replace a traditional bank. If you are going to take out a mortgage or need personalised advice, it is worth keeping an account with a traditional institution in parallel.
How is a prepaid card different from a neobank?
A neobank is a digital bank account with an IBAN and the associated banking operations (transfers, direct debits, savings, investment). A prepaid card is not a bank account: it is a product you load with balance and use for payments, without the full functions of a current account. Hybrid solutions exist, such as Bitsa, which offer a prepaid card with an associated IBAN to receive transfers, without being a bank.