Neobanks are fun

Sorry, Dad, but there’s a simpler, more convenient way to manage money

Last summer, a local neobank launched an ad campaign that struck a chord with many millennials. Called “Ditch Dad Banking”, it posited the idea that if you don’t dance like your dad, greet friends like your dad or exercise like your dad, then why do you bank like him? In less than a year, whether or not it was due to the provocative ad or not, the neobank signed up more than 45,000 accounts, mainly from its intended younger customer base.

While so-called digital natives, or those who never had to set foot in a bank to withdraw or deposit money, are the natural audience for neobanks, it’s not to say that they don’t appeal to those outside the demographic. On the contrary, the best way to understand the benefits of a neobank is to open an account. It’s free, it can take less than five minutes provided you have your proof of identity at hand, and if you change your mind halfway through the process you can close it.

I opened a neobank account to go through the process and, much to my surprise, the experience was as good as they said on the label. With all the money management tools bundled into the account, it does have the potential to radically change the way you save, spend and borrow money. Sure, there are many savings and budget apps available, but to have it inside your bank account makes the activity less of a chore and, in many ways, more like an enjoyable game for grown-ups.

Dan Teper, head of fintech at KPMG Australia, says you shouldn’t compare neobanks with the majors. One group is in its infancy while the other has been around for 100 years or more. Some neobanks are ready for business, while others are awaiting a licence.

But if you want to see how neobanks put the customer at the centre of the banking experience compared with the traditional model, look at the UK market, which is several years ahead of Australia. In the UK, the Monzo neobank is a dominant player, with more than five million customers. One in four of the population already holds a neobank account.

“In Australia, neobanks are very much in the build phase. In the UK, neobanks have successfully co-existed with the major banks, so it wouldn’t be a surprise if that happens here, too,” says Teper.

So, given it’s early days, why should you consider opening a neobank account?

1. Budget and savings tools are bundled into your savings account

While there is a plethora of money management apps available, neobanks offer the same, if not better, tools to track your spending and saving patterns. And because they are connected to your savings or transaction account, you get a real-time picture of where your money goes. Over time, the underlying program gives you more personalised recommendations for when and where to save.

2. You can easily open accounts for your children.

While linking accounts is not unique to neobanks, they have certainly made it easier. For example, one neobank allows banking customers to create up to five junior accounts (age seven to 17), set up a weekly allowance on each account and create tasks for them within the bank’s app to get extra pocket money. Parents (or grandparents) can also nominate savings goals under these accounts.

3. In a few years, mortgage or small business loans will be available. Local neobanks have launched savings accounts and are only just gearing up to offer term deposits, home loans and other products. But once these accounts become a regular offering, there should be shorter approval times and lower borrowing costs. Under the open banking regime that kicked off last July, it will be much easier to switch banks or move home loans, ensuring both big banks and neobanks stay competitive.

One major caveat is that neobanks are still chopping and changing. 86 400, the first neobank in Australia to offer home loans, is in merger discussions with NAB’s UBank while Xinja, the neobank behind the “Ditch Dad Banking” campaign, had to shut down its banking operations in December because it couldn’t raise enough capital during the pandemic.

Neobanks are not for everyone, but they will appeal to the early adopters. Once you’ve experienced firsthand the benefits of using one, you’ll begin to understand what all the fuss is about.