The term ‘neobank’ refers to a new crop of financial institutions that has been sprouting up throughout Australia and the rest of the world since at least 2017.

What makes these banks different from traditional banks is that they have been reimagined from the ground up with a purely digital focus – to run seamlessly through an app and with no branches anywhere in sight.

What are the benefits of using a neobank?

The outside-the-box thinking common to neobanks offers several advantages over traditional banks:

• A better digital experience. Neobanks’ digital offerings aren’t hamstrung by complex legacy systems common to traditional banks. That lets them quickly develop and release features like peer-to-peer payments, spending analysis, AI-based money management tips and customisable user-friendly dashboards.
• Lower costs. The lower cost of operating a digital bank means the bank can pass those savings onto you in the way of no-fee accounts, a free debit card and overdraft protection – by not allowing you to overdraw in the first place!
• Less hassle overseas. Many digital banks offer fee-free international transactions at highly favourable exchange rates. Some digital banks will even let you store multiple currencies all within the same app.

What’s the difference between a digital bank and a neobank?

You may be wondering about digital banks like ING, ME Bank and UBank. After all, they don’t have any branches (at least until recently), they operate via an app and it seems like they’ve been around forever.

The truth is, these banks aren’t truly 100% digital; they’re usually operated by a large traditional bank. For example, ING is owned by ING Bank, ME Bank by industry super funds and Ubank by NAB. Digital banks generally have the same drawbacks that traditional banks have, namely they generally operate off a digitised version of their legacy systems.

There’s nothing wrong with digital banks like these. After all, their lack of branches translates into lower operating costs for the bank and ideally better terms for you.

But neobanks take this one step further by focusing on purely digital solutions that are built from the ground up for a digitally savvy customer.

Are neobanks safe?

A bank needs to become a licensed authorised deposit-taking institution (ADI) to take deposits in Australia. This means they have to go through the regulatory process to get approval from and be overseen by the Australian Prudential Regulation Authority (APRA).

Being an ADI means the bank has demonstrated to APRA that they meet APRA’s prudential standards and other regulatory and legal requirements.

It also means the Australian government will protect your deposits up to a cap of $250,000 with that ADI

Are there any neobanks in Australia and what services do they offer?

Here are the Australian neobanks with full ADI status offering consumer-facing products as of November 2019:

• Xinja. Offers transaction accounts and is beta-testing home loans.
• 86 400. Offers everyday transaction accounts, savings accounts and home loans.
• Up Bank (through Bendigo and Adelaide Bank). Offers everyday transaction accounts and savings accounts.
• Judo Bank. Offers small-business loans and term-deposits.

Other financial institutions that either don’t yet have an ADI or have not officially launched any products include Revolut and Qpay.

The information in this article is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal, financial, and other professional advice.

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Banking is moving into a new high-tech universe. Like many other aspects of our lives, the digital revolution is about changing the way we bank. In the future, we might even use Snapchat, Facebook, Instagram or other social media platforms for our banking with the traditional bank relegated to providing wholesale services.

Here’s what I think:

Right now, banks have the power

Whichever way we turn there are fees, fees, and more fees. Most banks keep their shareholders very happy with all the profit they earn from us. Sometimes it even feels like they have an intravenous line hooked up to our wallets. When it comes to travelling overseas, Choice said Aussies faced the “slippery world of foreign exchange” – we often get hit when we go overseas with fees at both ends to withdraw our money. What’s more, with most credit and debit cards there are international transaction fees charged when we buy in a foreign currency.

What does the bank of the future look like?

There are banks in the US and the UK that are offering services that are ahead of what we have available here in Australia. For example, instead of having a traditional bank account as your home screen, these banks enable you to view your money through your budget as a landing page and can see how you’re tracking for the month. They show you at a glance what’s safe to spend and send notifications when you’re spending too quickly. Imagine that? Bring it on.

Yeah. Let’s get going!

Hold on there. These US and UK banks can’t just set up shop in Australia. They need to become an Authorised Deposit-taking Institution (ADI). In other words, they need to get a banking licence. That involves jumping through more than a few hoops. But never say never. It’s highly likely we’ll get this type of service eventually from our existing banks or quite likely from an innovative start-up. Banking is improving; some of our banks in Australia are at least sending customers alerts if they’re about to go overdrawn or incur a fee, or to set a savings goal, which is a great start. And some personal finance apps allow you to connect with your bank automatically so that you can see your “safe to spend” total at a glance.

Do I even need a bank?

Quite right. In the future we could do our banking on our social media account. Why can’t our PayPal account or Apple Pay, Android Pay, Samsung Pay, or even Alipay from Chinese giant Alibaba, become our banks? We can already, for example, send money to others via PayPal if we have their email address. With their reach, social media platforms such as Facebook, Snapchat and Instagram can run banking-type features. In the US, you can already send money to a friend via Facebook Messenger; all you do is open a message, tap the $ icon and add your debit card to send the money. There are other peer-to-peer payments systems. In China, WeChat offers financial services and some say there’s a battle raging to become the WeChat of the West.

What about Bitcoin and other cryptocurrencies?

Cryptocurrencies have the potential to change the way you travel. For example, a person can go on holiday, to say, Brazil, walk into a local change house and swap the equivalent of $100 or $500 in cryptocurrency for local currency for a few cents charge. This is already happening on a small scale. An example I’ve come across is Filipino workers in the United States who send Bitcoin back to their families, who then cash it in locally. We already have a handful of Bitcoin ATMs in Australia, which allow you to withdraw your Bitcoin in Aussie dollars. Bitcoin doesn’t need a bank and can be managed on your smartphone.

But what about now?

You’ll have to hope that someone has the balls to open up  a bank in Australia that’s similar to the modern US and UK banks. We do have some innovative banks that could do it. With a service like this you can use your account abroad with no nasty charges, which is amazing for regular travellers or those who want to transfer money to friends, relatives and others overseas, or buy products online.

It won’t be long before banking gets a whole lot more efficient in terms of time and cost.

Banks could be the next industry to get the digital goodbye kiss. We may not even need banks in the future. They act as middlemen and that’s something that digital technology can do. Right?

The post The future of banking: it’s banks, Jim, but not as we know it appeared first on Credit Simple.

Budgeting, planning and all the good credit habits in the world are no good if someone goes and nicks your hard-earned money. These days, though, the bad guys are unlikely to turn up with stockings over their heads and big sacks marked “swag”. Digital crime – money being stolen directly from your bank account – is on the up.

There are two ways this can happen, and one is a lot more common than the other.

“Hacking” is what most of us think of when we imagine money being nicked from our bank account (or what we blame when our Facebook account suddenly starts posting amazing deals on Oakley sunglasses). Real hacking though – someone sitting down and going all out to bypass your bank’s security systems just to get at your grocery money – is pretty rare. It’s hard, it takes time, and crooks are lazy.

“Phishing,” on the other hand, is a lot more common. And that’s where underpants come into it.

Phishing relies on what computer security people call social engineering. Instead of writing some clever code or virus, a phishing attack typically uses something simple like an email or a Facebook message to lead you down a path that ends in you sharing your bank login details with the bad guys.

The messages and emails can look pretty convincing, and before you know it you’re at what looks like a banking login page, giving the keys to your virtual vault to who-knows-who.

Give away that password, and you haven’t been burgled: you’ve left the front door open and told the crooks which mattress the money is under.

Your best protection? Treat your banking passwords like your underpants.

Change them often
OK, we’re not suggesting you change your password every single day (or more often, if you’ve been for a run). But a password that hasn’t changed since you opened the account is hack-cident waiting to happen. If keeping track of ever-changing passwords is a hassle, you could always try a reputable password management app.

Don’t share them
Underpants are personal and so are banking passwords. So no matter how much you trust someone, don’t ever share your password with them. That goes for your bank, too! The only place a bank will ever ask for your password is when you’re logging in to online banking. And they’ll never link you to a log-in page via an email or Facebook message. (Bonus tip: same goes for your credit and EFTPOS card PIN!)

Don’t leave them lying around
You wouldn’t leave your undies on the desk at work, or stuck to the fridge door at home (well we really hope you wouldn’t). Same deal with your banking password. Writing it down is risky enough. If that’s the only way you can remember it, though, put it somewhere no one will think to look – and don’t make it obvious what it is.

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