Neobanks – Monzi Investigates

Neobanks have launched an ambition mission to revolutionise the Australian banking landscape. Should you trust them with your money? Are they a fad or are they here to stay? Monzi’s here to investigate the world of neobanking for you. Let’s go.

Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

Neobanks: what are they?

In today’s world, everything is going digital. From ordering groceries or clothes to applying for finance online, you can do just about anything digitally and banking is no different.

In short, neobanks are financial institutions that exist solely online. That means there are no branches. You can simply sign-up through the relevant apps and have an account up and running in minutes.

Worried about customer service? Don’t be. Any concerns or queries that you have can be dealt with online via live chat features, over the phone or through email.

Let’s be realistic, how often do you really need to visit your bank’s branch? Digital banks provide a simple, convenient banking option that you can manage from the comfort of your own home. Not only that, they may offer a host of additional product benefits too.

How does a neobank work?

These banks works in exactly the same way as a regular bank. The only difference is that they don’t exist in a physical location.

To open an account, all your need to do is download the app and follow the simple instructions. Your new savings account can be ready to go in minutes.

From there, you can make deposits or withdrawals whenever you like. A debit card will be mailed to you, while you’ll be offered Google and Apple Pay options too.

Pretty simple, right?

What’s the difference between digital banking and neobanking?

Digital banking refers to the online service offered by traditional banks (e.g. the Big Four). This includes transaction accounts, savings accounts and other such products that you can monitor, track and make use of online. If you make a bank transfer online, this is an example of digital banking.

Neobanking is quite similar. However, there’s one major difference. While it includes accounts and other online banking services, it only refers to those that are offered by banks that exist solely in the online marketplace.

What is the best Australian neobank?

While we cannot say definitively which bank is the best, what we can say is that there are a range of options for you to choose from.

To help you out, we thought we’d provide a quick introduction. So, see below for a quick breakdown of a few of Australia’s leading digital banks.

  • Up Bank: a bank that prides itself on helping you organise your money and simplify your life. With an easy to use app and a range of handy tracking features, Up Bank could be a great option if you’re looking to manage your finances more effectively.
  • Volt Bank: Australia’s first neobank to begin accepting deposits, Volt Bank is now a trusted name in the online banking market.
  • 86 400: the name comes from the number of seconds in one day. In short, 86 400 promises to help you feel in control of your money, every second of every day.
  • Xinja: one of the new players in the market. With a strong financial backing, they could soon be a dominant force.

Compare digital banks in Australia

So, you’ve decided to make the switch. The next step is selecting the right bank for you. In short, the best way to do this is by doing your research. Shop around and compare to products on offer to find one that works for you.

If you’re not sure where to begin, here are a few things to consider when comparing savings accounts:

  • Find the highest interest rate.
  • Look for bonus interest offers.
  • Minimise your account fees.
  • Is there a minimum or maximum account balance?
  • How often can you deposit or withdraw money?

For more information, the Australian Government’s Moneysmart site has provided a dedicated breakdown to help you select the right savings account. Check it out here.

Who are digital banks good for?

Realistically, a digital bank is a viable option for people from all walks of life. In saying that, in our minds, digital banks may suit two categories of people perfectly.

First are the tech-lovers. At this point, paying with cash is just a hassle. If you’ve got a smartphone, then ApplyPay and Google Pay are right there at your fingertips. You can simply tap and go. There’s no need to wait around for change.

Secondly, digital banks are great for travellers. While traditional banks tend to sting you with fees when you’re overseas, neobanks have tried to cater to this market. With this, it may be possible to access no fees on international purchases as well as no ATM withdrawal fees. So, if you’re looking to head overseas, do your research to find the options that might be available for you.

Are these banks safe?

If you’re trusting a bank with your money, you want to be sure it’s rock solid when it comes to security and guarantees. Luckily, digital banks are. As a result, you’ve got nothing to worry about.

In terms of security, all platforms will offer various account and login protections to ensure your money and details are kept safe and secure. These can include two-step verification as well as facial recognition too.

From a guarantee perspective, many digital banks have Australian banking licences. With this, they’re eligible for the Australian Government’s deposit guarantee. That means that in the event that the bank goes bust, your accounts are guaranteed to be paid out up to $250,000.

Finally, as they are licenced, all banks are subject to Australian banking regulations. With this, you can be sure that they will do things by the book.

Neobanks woman sitting at table on smartphone

What are the advantages of digital banks?

With so many established banks, digital banks have had to find a way to separate themselves from the competition. Luckily, they’ve done this through a host of user benefits. Check them out below:

Lower costs

As they don’t have physical branches, these banks have lower overheads. With this, they’re able to pass savings onto their customers. If you sign up today you can expect more competitive fees and potentially even better interest rates on savings accounts.

An excellent user experience

Neobanks make your life easy. With a 100% online service and sleek, well-designed apps, all your customer service needs can be dealt with from the comfort of your own home. Not only that, you can sign-up in minutes. There are no drawn out processes.

In other words, digital banks are all about simplicity, convenience and innovations. Banks have done things the same way for years, now these banks are here to challenge the status quo.

Insights into your spending

With clever AI, these banks are able to track your spending habits. From this, they can provide you with a detailed breakdown of your spending habits. Moreover, with an insight into where your money goes, some of these banks will offer guidance and tips on how to better manage your money too.

What are the disadvantages of these banks?

Before you dive in, it’s worth understanding the potential drawbacks. While they are not necessarily fatal flaws, they do warrant consideration.

Firstly, as they are 100% online there’s no branch access. While they have customer services teams available so you can deal with issues over the phone, if you are someone who prefers face-to-face meetings then this will be unsuitable.

In addition to this, there are only limited products available. Digital banks are still very much in their infancy meaning at the moment you will typically be only to access savings and transaction accounts. However, as they grow, product lines will too. Eventually, credit cards, loans, term deposits and home loans will be offered too.

Finally, while some platforms are aligned with traditional banks, for others, ATM access can incur a small fee. Obviously, if you’re someone who prefers to pay exclusively via their debit card then this won’t be an issue. For others, it warrants consideration.

Is neobanking the future?

We don’t want to make any outlandish claims. However, it seems almost certain that banks will occupy some role in the Australian banking sector going forward.

With their sleek, well-designed apps and 100% online system, digital banks seem well-placed to capitalise on a world that is becoming more and more technology-focused each day. Realistically, the need for branches is disappearing. Think about how many times you’ve visited your bank in the last five years. There’s a good chance the number won’t be very high.

Furthermore, with distrust of traditional banks ever-present, online banks may be an attractive option for many customers. While some are affiliated with existing banks, others have no attachments to the established banking sector at all. As a result, they can provide a much needed breath of fresh air for many consumers, particularly following the disastrous and troubling Banking Royal Commission that handed down it’s report in 2019.

What are the risks of digital banking?

Obviously with any online account there is a risk of hacking and fraud. However, this would be the same with an online account held with a traditional bank too.

In other words, it simply comes with the territory. To combat this potential threat, most digital banks offer two-step verification and even facial verification too. So, make use of these options to ensure your account is kept secure.

How do I join a neobank?

Creating an account could not be simpler. Just download the app of the relevant bank onto your phone and follow the directions on how to register. There’s no waiting list and your account should be up and running within a few minutes of registering.

Alternatively, most banks will offer the option to register through their website. The process will be the same, you’ll just be able to do it on your laptop or PC instead.

Finally, you will need to verify your identity as part of the registration. Typically, you will need to provide images of various forms of I.D as well as a selfie. So make sure you have these on hand before you begin.

I have an account: now what happens?

Once you’ve opened an account, you’re good to go. Simply transfer funds to it and you can start making purchases.

If you’re an iPhone user, ApplePay is simple to set-up. You can have a digital card from your chosen bank added to your account in minutes. You’ll also receive a debit card too. So, stay by the mailbox as it will usually arrive within seven business days.

There’s no restrictions on where you can make purchases either. Your digital bank account is no different from any other bank account meaning your card will be accepted anywhere.

Are neobanks government guaranteed?

Yes.

A number of online banks have secured banking licences in Australia. With this, they receive the government’s guarantee on deposits up to $250,000. In other words, in the event that the bank collapses, you are guaranteed that you will not lose your money for deposits up to $250,000.

This is a significant deal if you’re concerned about joining a fledgling operation. The government guarantee means that there is minimal risk, even in a worst case scenario. Moreover, the fact that they are licenced means that they must comply with Australian banking regulations which adds another level of consumer protection.

Should I make the switch?

In short, it’s up to you.

As we’ve discussed, the benefits of digital banking include great interest rates on savings accounts, limited account fees and a great user experience. Moreover, if you’ve become disillusioned with the traditional bank system then they could be the breath of fresh air that you need.

In saying this, they are still very much in their early days. As a result, it’s understandable if you’re hesitant. Traditional banks have been around for a lot longer so it’s natural to have greater trust in them. Moreover, it’s nice to have the option to visit a branch if you need.

In any case, keep an open mind. Do your own research and form your own opinion based on the information that you gather. It’s quite possible that a digital bank could be perfect for your needs and requirements.

Monzi Personal Loans

Monzi is not a digital bank. We are a lender-finder service that may be able to match you with a potential lender. Moreover, the lenders in our network may be able to offer the following personal loans:

Small personal loan$300 to $2,000Unsecured
Medium personal loan$2,001 to $4,600Secured
Large personal loan$5,000 to $10,000Secured

Consumers start by scrolling up to the loan slider.

Factor In

Costs

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You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000

Terms

12 months

Costs

20% upfront establishment fee

+ 4% monthly fee

Example

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate

Loan amount

$2,001 - $4,600

Terms

13 months

24 months

Costs

48% annual percantage rate

67.41% comparison rate p.a.

Example

Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principle Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Interest Rate for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

Loan amount

$5,000 - $10,000

Terms

13 months

24 months

Costs

21.24% annual percantage rate

48% comparison rate p.a.

Example

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principle Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

The Interest Rate for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.