A neobank is a digital-first provider of banking services, but the label does not tell you whether the provider is legally a bank or whether it holds your deposit. Some digital-first providers are licensed banks; others are nonbank companies that offer an app or account through a bank partner. To understand who protects your money and who must resolve a problem, check the specific institution and account arrangement—not just the brand on the app.
What is a neobank?
In everyday use, “neobank” describes a provider built around online or app-based banking services. The term is a market label, not a precise legal category. Providers grouped under it may have different charters, regulators, protections, products and operating arrangements.
The European Central Bank (ECB) uses the term “digital banks” for a more specific group. It describes them as institutions that “do business solely in the online space, without developing bricks-and-mortar branch networks.” The ECB also cautions that taking deposits online alone is not enough to classify every bank as a digital bank; its analysis applies additional identification criteria.
Digital bank or nonbank app?
A provider may itself be a licensed bank, or it may be a nonbank fintech that distributes financial services through a licensed partner. The app can look much the same in either case, even though a different institution may hold the deposit and separate companies may handle the app, payments, customer service or disputes.
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That distinction matters more than whether a company calls itself a neobank. When assessing an account, find the legal name of the deposit-taking institution and establish whether the product is a bank deposit or a balance held by a nonbank payment app, wallet, broker or other firm.
How large is the digital-bank market?
The ECB’s 2025 analysis describes the euro area, not the global market. It estimated about 60 digital-only banks there at the end of 2024; seven were subsidiaries of traditional banks. The count is an identification estimate, not a universal legal register of institutions.
Digital banks’ share of total euro-area banking assets rose from 3.1% in 2019 to 3.9% in 2024, according to the ECB. In its supervisory-data sample, about 80% of digital-bank funding came from retail depositors. More than 90% of those retail deposits were covered by deposit guarantee schemes.
Those figures have defined scopes: the ECB’s funding chart uses a sample of 59 banks, and its asset-model classification uses 54. They describe sector-level patterns in the euro area, not the protection, funding mix or safety of any particular provider or account.
How do neobanks work and make money?
Digital banks do not all use deposits in the same way. In the ECB’s euro-area sample, some take deposits and lend, often concentrating on consumer, mortgage or nonfinancial-corporate lending. Others have little material lending and hold funds in liquid assets, primarily central-bank reserves. A digital subsidiary may also hold substantial assets within its traditional banking group.
These models imply different sources of income and different exposures. A lender earns from its lending activity while paying for funding, including deposits; a bank with little lending relies more on returns from the assets it holds. The ECB notes that digital banks can face relatively high deposit costs as well as fixed IT and marketing expenses. It does not establish one revenue formula for every provider.
For a customer, the useful question is not simply whether an account is app-based. Consider what the institution does with deposits, how diversified its business is, whether it is part of a larger banking group, and what services the account actually includes.
What are the benefits and tradeoffs?
Potential benefits
- Online convenience: Customers can access services digitally without relying on a branch network.
- More competition: The ECB says digital banks can benefit consumers through competition that may encourage incumbent banks to improve.
Potential tradeoffs
- Less in-person access: A provider without branches may offer fewer ways to get help or handle cash face to face.
- Narrower product range: The ECB notes that digital banks can have limited scale and product offerings.
- Operational dependence: App access may rely on the provider’s systems and third parties involved in technology, payments or servicing. An outage, account freeze or fraud dispute can therefore affect a customer’s practical access to funds or support.
- Fast-moving deposits: Easy online transfers can make it quicker for customers to move money. The ECB identifies this as a potential vulnerability for the sector; it is not evidence that any individual digital bank is unstable or that a bank run is inevitable.
Are neobanks real banks, and are they FDIC-insured?
Some are licensed banks; others are nonbank companies that provide an app or service in partnership with a bank. “Neobank” alone does not establish which is true, and deposit protection depends on the country and the exact account structure.
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Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →In the United States, the FDIC says that “nonbank companies themselves are never FDIC-insured.” If a nonbank says it places customer funds with an FDIC-insured bank, that does not by itself confirm that a particular customer’s balance is covered. Identify the bank holding the funds and confirm its status.
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Pass-through deposit insurance is also conditional. U.S. guidance from the Federal Reserve, FDIC and Office of the Comptroller of the Currency explains that funds must be deposited at an insured institution and that account records must support the required ownership relationship, including identifying beneficial owners and their interests. This U.S. guidance should not be assumed to describe deposit-protection rules in other countries.
Before relying on a protection claim, establish whether your balance is a deposit at the named bank, whether the account structure and records meet the applicable requirements, and which country’s deposit-guarantee rules apply.
Who is responsible when a bank uses an app or partner?
A banking app can involve more than one company. Under arrangements described in a 2024 U.S. interagency statement, a third party may market and distribute accounts, provide technology or payment processing, service accounts, handle customer service, support compliance work, or help manage disputes. That can make it harder for a customer to tell which company holds the money and which one to contact.
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The U.S. agencies warn that these arrangements can create operational, compliance, record-access, security and consumer-confusion risks. They also state: “A bank’s use of third parties to perform certain activities does not diminish its responsibility to comply with all applicable laws and regulations.” This is a statement about bank responsibilities under applicable U.S. law; it does not mean a bank partner performs every customer-facing function or resolves every complaint directly.
A separate example shows why regulatory scope matters. In a November 21, 2024 announcement, the U.S. Consumer Financial Protection Bureau said its final rule covered specified large nonbank digital payment apps handling more than 50 million U.S.-dollar transactions per year. The agency estimated that the most widely used covered apps collectively process over 13 billion consumer payment transactions annually. This concerns particular payment-app activity in the United States; it is not a general licensing definition for neobanks.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to evaluate a neobank account
Use the provider’s current disclosures and the relevant regulator’s records. Check these points before opening an account or moving a balance:
- Identify the deposit-taking institution. Find the exact legal name of the bank holding the deposit and verify whether it is insured in the relevant country.
- Determine what your balance is. Confirm whether the product is a bank deposit or money held by a nonbank payment app, wallet, broker or other company.
- Check any pass-through insurance claim. Ask which insured bank receives the funds and whether the custody arrangements and records identify beneficial owners and their interests as required by the applicable rules.
- Map out support and disputes. Establish which company handles customer service, errors, unauthorized transfers and dispute resolution, and how to reach it if you cannot use the app.
- Review the account’s practical terms. Check current fees, rates, transfer limits, cash access, eligibility rules and product scope in the provider’s disclosures. These terms vary by provider and can change.
- Consider operational dependencies. Find out what access or support options remain if the app or a key service is unavailable, and whether the account’s product range suits your needs.
- Apply the right country’s rules. Confirm which regulator and deposit-protection system apply to the institution and product; U.S. insurance guidance does not automatically apply elsewhere.
What happens if a neobank app goes down?
An outage can make the app’s services difficult or impossible to use while the problem lasts. The practical impact depends on the provider and the account: an app may be the main route to see balances, make transfers or contact support, while other companies may handle payments or servicing behind the scenes. The existence of an outage does not by itself establish what happened to the underlying deposit or whether a customer can access it through another channel.
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Before depending on an account, note how to contact support without logging in, where to report an unauthorized transfer or error, and whether the provider describes any alternative way to access the account. If a problem occurs, use the provider’s published support and dispute channels and keep records of relevant transactions and communications.
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