Neobanks, also referred to as digital-only or online banks, are becoming increasingly popular for small business owners looking for an alternative to traditional banks. A neobank is a digital banking platform that offers the same services as a traditional bank, with the added benefit of allowing customers to manage their accounts entirely online. This makes neobanks particularly attractive for small businesses who need to manage their finances in an efficient and cost-effective way.
These fintech neobanks are currently transforming the banking business as a whole in a similar fashion to how Uber and Lyft transformed the transportation sector and Airbnb transformed the hospitality sector.
If you are a small business owner considering making the switch from a traditional bank to a neobank, there are several factors to consider:
1. Neobank Fees
Compare neobank fees with those of traditional banks to determine which one is more cost-effective in the long run. Neobanks might have fewer fees than a traditional bank but may charge higher monthly subscription fees or transfer charges depending on how often you use their services.
One of the main advantages of neobanks for small businesses is their lower fees. Unlike traditional banks, neobanks do not have physical branches or staff, which means they can offer lower fees and more competitive interest rates compared to traditional banks. Additionally, they typically offer more flexible account features such as no minimum balance requirements and no overdraft fees. This makes it easier for small business owners to manage their finances without being held back by costly fees or other restrictions.
2. Features and Services
Before switching to a neobank, make sure it offers the features and services that you need for your financial goals. Consider whether neobanks offer savings accounts, checking accounts, credit cards, debit cards or other products.
Another advantage is how easy they are to use. With a neobank, small business owners can quickly set up an account and begin managing their finances with little effort. They also have access to modern technologies such as mobile apps and automated banking features that make it easier than ever before to track expenses and payments in real time. This gives small business owners greater control over their finances and peace of mind knowing where their money is at all times.
3. Neobank Interest Rates
Neobank interest rates can vary significantly from one provider to another so compare different neobanks to find out which ones offer better returns on deposits or investments without charging too much in terms of fees and commissions.
4. Neobank Lending
Lending has historically been a major source of income for conventional banks, however, it can be difficult for neobanks because most of them lack a banking charter and cannot acquire the affordable capital they require to lend money profitably. Building underwriting models takes years, and keeping charge-offs low requires skill. Since capital will become more expensive due to inflation and rising interest rates, lending will probably be more difficult.
Partnerships with fintech lenders like Driven make sense since as partners they can disrupt every aspect of the customer journey by using new advances in AI.
5. Security and Privacy Policies
In addition to offering convenient access, neobanks also provide comprehensive security measures that keep customers’ financial information safe from hackers and other malicious actors. Neobanks employ encrypted systems that protect customer data from unauthorized access, ensuring that only those with permission can view sensitive information such as bank statements or payment records. This helps small businesses rest assured that their financial data is secure when using a neobank account.
6. Availability of Customer Support:
Make sure that customer support is available 24/7. Each neobank will have a different employee structure. It’s important to choose a neobank that provides consistent and reliable customer support.
7. Access to Insights:
With neo banking services like direct deposits and automatic payments, businesses can easily keep track of their cash flow while saving time on tedious administrative tasks such as reconciling accounts or setting up payment reminders. Their services also provide insights into spending trends which can be invaluable for businesses looking to manage expenses and improve general financial health.
Overall, neo banking offers many advantages that make it an attractive option for small business owners looking to streamline their finances and cut back on costs. The convenience factor alone makes neo banking worth considering since digital channels make it easier to manage money around the clock from any location in the world. And with lower transaction fees than traditional banks along with personalized advice tailored specifically to small business owners’ needs, neo banking is certainly worth looking into if you want to take your business finances up a notch without breaking the bank (literally!).
Advice and research for Canadian small businesses from our expert team