Extracts from various websites

This post as an attached document

What is a Neo Bank?

A neobank is a type of direct bank that is 100% digital and reaches customers on mobile apps and personal computer platforms only. Neobanks do not operate traditional physical branch networks. Neobanks are technology-driven and may adopt machine learning and artificial intelligence technologies whilst not being constrained by legacy systems of traditional banking competitors.

Neo Banks are starting to evolve in Australia, with not only the introduction of equity crowdfunding, but legislation being put forward that reduces restrictions on an organisation.

How does a Neo Bank work?

Apps that facilitate the administration of accounts and credit cards are typical Neo Banks. They rely on customers having an account with an underlying Bank and corresponding bank license, bu offer a user-friendly interface. The extent to which customers are aware of the underlying bank relationship day to day may vary.

Put simply, a ‘Neo Bank’ is a bank sitting on a 100% digital and mobile platform (ie: no physical branches), but more than that, its systems are 100% new too. This means it is not simply a digital front end to a traditional (and mostly cumbersome from a technological perspective) bank.

Currently, the digital front ends that have been added to traditional banks represent just a digital manifestation of the traditional banking experience.

How else do neobanks differ from traditional banks?

https://www.bankrate.com/banking/5-questions-to-ask-before-trying-a-neobank/

Jim Marous, co-publisher of The Financial Brand, says neobanks stand out because of these features:

  • Low cost structure: no monthly fees, no withdrawal costs and low reloading fees.

  • Large ATM networks with no fees.

  • No overdraft fees because the checking products are prepaid, reloadable debit cards.

  • A simple and engaging mobile experience, unlike banking on a phone with a traditional bank.

  • Intuitive budgeting and money-tracking tools that allow you to determine whether or not you should buy an item.

  • Real-time balances: The balance on your smartphone is the exact amount of money you have available.

Some neobanks also provide ways to use retail facilities for making deposits, reloading their accounts or paying bills. GoBank customers can put cash in their account at Wal-Mart or 7-Eleven. Neobanks like Chime work with Green Dot to make deposits possible at these locations, too.

Last year, Chase and Wells Fargo both announced that they would begin testing standalone brands that would function like neobanks but would include branch access, too.

The other main difference is the breadth of products they offer. Neobanks have been purely deposit focused, but experts say many are looking to expand beyond deposits as they evolve from startups backed by venture capitalists to viable and profitable companies.

This expansion is often referred to as the rebundling of banking. Neobanks wanted to disrupt the deposit side of banking, while fintech lenders like SoFi or Lending Club looked to change the lending business. They unbundled banking. But loans and deposits tend to go together, as do payments and wealth management, so these companies are now starting to put the pieces back together.

Are Neo banks safe?

Neo banks need to have the same banking licences and approvals as existing Australian banks before they’re able to offer products and services to consumers. These new banks will be regulated by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investment Commission (ASIC) in the same way that existing banks are regulated.

Your deposit of up to $250,000 with an Australian authorised deposit-taking institution (ADI) is protected by the Australian government. This means if something were to happen to the bank, your money (up to this amount) would be safe. Note that some of the digital banks mentioned in this guide are not yet considered banks (they aren’t ADIs) because they’re waiting on their banking licences from industry regulators.

Are neo banks regulated?

A neobank is a type of direct bank that is 100% digital and reaches customers on mobile apps and personal computer platforms only. Neobanks do not operate traditional physical branch networks. Neobanks are technology-driven and may adopt machine learning and artificial intelligence technologies whilst not being constrained by legacy systems of traditional banking competitors.

ING, ME and UBank aren’t 100% digital banks.

Many people refer to ING and ME as digital banks because they don’t have any physical branches. However, these banks aren’t neobanks because they rely on existing banking infrastructure.

For example, ING is owned by multinational Dutch bank ING Group and relies on its infrastructure and legacy systems to operate. ME is owned by more than 20 industry superannuation funds, including AustralianSuper and Hostplus. Similarly, UBank is actually owned by NAB, one of the Big Four banks in Australia, and relies on a lot of NAB’s existing operating systems to function.

Who is attracted to Neo Banks

  • The new starter. Money comes in the form of pocket money, salary or gifts and sits in an account waiting to be used. When the time comes, it turns into spending money. Best suited to use Up as Up requires only 5 Debit transactions to ensure a reflected interest rate of 2.25%. It’s great for those who have less than $50,000 in savings. Upsiders can also receive payments from friends or family through PayID.

  • The young renter. Banking behaviours include paying for rent, putting aside money for a new purchase or for weekend partying, and transferring what is left over into savings. Best suited to use Up. Up has the ability to plan future or recurring payments, split pay into multiple “Savers” by $ or % amounts and receive money from friends through PayID.
  • The credit card rotator (or simply prefers to use a credit card to make purchases). Everyday spending is primarily focused to maximise points generation, this eliminates Up (due to the bonus interest criteria of 5 debit transactions a month). Best suited to use a bank of your choice (to receive your salary) and 86400 to store savings (transfer in $1000 a month – if you aren’t saving that much a month, you can transfer out and transfer back in! Do keep in mind 86400 requires you to have less than $100,000 in savings to ensure a reflected 2.25%.)
  • The sophisticated borrower. This person has a home loan and more than likely an offset account with the same bank. They maximise the interest savings by using a credit card for all of their expenses to leave as much of their income to offset mortgage interest for as long as possible. In this type of scenario, I suggest waiting out until one of the NeoBanks launches their own home loan products. I was on the phone with 86400 Customer Support and was told that by the end of 2019 we should be seeing a home loans launched!


The Australian savings accounts with the best interest rates  

Here are the best: as at February 2020

You may have noticed neither Xinja, Revolut, Volt, Archa or Wild Card haven’t been mentioned or recommended. Xinja doesn’t offer a savings account and tends to focus only on transactions (why would you store your salary in a transaction account?) While Revolut does offer a savings account, it doesn’t come with an interest rate! They do both offer perks such as zero ATM fees. Although, zero ATM fees are offered by traditional/digital banks such as ME Bank, ING or Macquarie Bank. Volt and Archa have yet to launch in Australia. Wild Card has a unique concept of slowly releasing your money on a daily basis and doesn’t publicly offer savings accounts.

UBank USaver Account – 2.10%

UBank is a division of NAB that doesn’t have any branches. The 2.10% interest rate applies when you open a USaver savings account, link it with an Ultra transaction account and deposit at least $200 a month into it. You can only access the 2.10% rate if your balance doesn’t go above $200,000.

Xinja’s Stash – 2.25%

Neobank Xinja has a high interest savings account called Stash where you can earn 2.25% interest on balances up to $245,000. Plus, there are no minimum deposits or introductory periods.

Volt – 2.15%

Fellow neobank Volt offers a 2.15% variable interest rate on balances up to $245,000. The company added on its website, “We’ve all seen them, the introductory rates that slip to next to nothing once you’re in, paying less attention – or the one where you have to put loads of money in every month – and all the rest, there’s too many to list. There’s none of that with Volt. That’s the rate. That’s what you get.”

Rabobank Online Savings High Interest Savings Account – 2.5%

Rabobank’s High Interest Savings Account is linked to your everyday account and has a four month introductory variable interest rate of 2.5% per annum, up to $250,000. Once you reach $250,000 the interest drops down to the standard rate of 1.05% per annum.

AMP Saver Account – 2.36%

With AMP’s Saver Account you get 2.36% variable interest rate per annum for the first four months before it goes back to 1.4%. The interest rate applies to balances up to $250,000.

CUA eSaver Reward Account – 2%

You can earn up to 2% per annum with the eSaver Reward Account on balances up to $100,000. That’s if you deposit $1000 or more a month.

Suncorp high interest growth saver account – 1.95%

Suncorp offers a 1.95% per annum interest rate when you grow your net balance by at least $200 a month. And you can still make one withdrawal a month and keep that same interest rate.

Bankwest Hero Saver account – 1.85%

With the Hero Saver account, you get a 1.85% variable interest per annum if you deposit $200 a month and don’t make any withdrawals. It applies to balances up to $250,000.

HSBC Serious Saver Account – 2.35%

You get a four month introductory variable rate of 2.35% and afterwards, this goes down to 0.45%. However, no interest is paid when your balance is over $1 million or you withdraw money during the month.

Citibank Online Saver – 2.30%

With Citibank, the introductory rate is 2.3% for the first four months and for balances up to $500,000. After you reach that amount, the interest rate drops back to 0.85% per annum.

HSBC Flexi Saver Account – 1.75%

With the HSBC Flexi Saver account, you get a standard variable interest rate of 0.4% per annum and a monthly bonus of 1.35% per annum for balances up to $5 million. To get the 1.75% rate, you have to deposit at least $300 a month.

86 400 Save accounts – 2.25%

86 400 customers can have a maximum of three Save accounts. When you deposit more than $1000 a month into your Pay or Save accounts, you’ll earn 2.25% per annum bonus rate across your accounts, up to a maximum balance of $100,000 per account. It applies to balances up to $300,000 in total.

So why aren’t we all jumping over to NeoBanks?

  1. If trust is your concern, don’t worry. All banks are required to have a full banking licence, which allows them to operate as an authorised deposit-taking institution, this means the Australian Government’s Financial Claims Scheme guarantees any amount up to $250,000 if things turn sour on the banks side.

  2. The newest NeoBanks offering the highest interest rates are currently not offering loans, credit cards, and in some cases the capability to carry out simple money management, such as future dated and recurring payments. This subsequently makes selecting the “best” digital bank is subjective based on your spending and savings habits. Interesting!

  3. Lack of education. The financial empowerment survey by CUA found that found that 50% of Australians between the ages of 18 and 24 opt for the institution that their parents bank with, while almost the same percentage of Aussies (46%) overall felt their upbringing did not make them financially savvy.

Useful links

https://www.finder.com.au/digital-banks

Neobank and Money Apps 2020 – Compared by the Experts …

References

Neo Banks in Australia

https://medium.com/@blakedaetgibson/how-a-neobank-in-australia-today-can-fit-into-your-financial-setup-8a6b2922c38

Xinja Bank 

https://xinja.com.au/?%243p=a_optimise_media&mid=2050276&pid=37276&~click_id=6c376334d0344670b983b35be87af921&~secondary_publisher=Hive%20Empire_291525_&_branch_match_id=720232884033478603&utm_medium=paid%20advertising

https://medium.com/@blakedaetgibson/how-a-neobank-in-australia-today-can-fit-into-your-financial-setup-8a6b2922c38

https://www.finder.com.au/digital-banks

wikipedia.com