Paul's Insights: So, what are the neobanks?

Neobanks let customers do all their banking via smartphone apps. No bank branch, no paperwork, no internet banking.

That may be uncomfortable for some of us. But for millennials it can makes sense. Six out of ten 20-somethings already do their banking via a smartphone.

So what do neobanks offer?

Common features include a super quick sign-up process, the ability to bank straight from your smartphone – and at this stage at least, a limited product range.

In January, Australia’s first independent neobank Xinja, launched its ‘Stash’ savings account. Linked to Xinja’s everyday bank account, it pays 2.25% interest with no minimum deposits or payments.

Another neobank, 86 400 (pronounced ‘eighty-six four hundred’) is backed by Cuscal, which supports Australia’s mutual banking sector. 86 400 has an everyday account called ‘Pay’, and a savings account called ‘Save’. The savings account pays a base rate of 0.4%, or a total of 2.25% when you deposit at least $1,000 each month into the Pay or Save accounts.

Another new kid on the block is Up Bank (backed by Bendigo Bank), which has fee-free everyday banking options, plus a savings account paying a base rate of 0.50% plus bonus interest of 1.75% on savings up to $50,000 for each month you make five debit card or digital wallet purchases using the Up Everyday Account.

More neobanks are expected to launch in Australia. But what do they have that traditional banks don’t?

As you’d expect, their apps can be impressive, often with a variety of useful features.

86 400’s app lets customers view all their bank accounts in one place so you get a complete picture of your finances. Up Bank offers free international transfers. Other neobanks have automatic round-up features that send small change on purchases straight to your linked savings account.

At some stage, neobanks will likely offer products like home loans. It will be interesting to see how the savings of having no branch network will flow through to a better deal for consumers. Already 86,400 has a home loan with a variable rate of 3.09% – it’s a low rate but it’s not the cheapest on the market.

For all their points of difference, neobanks essentially do much the same as regular banks. They are a tool to manage your money, and the old rules apply. Don’t be blindsided by a whizz-bang app. Be realistic about whether you can meet the conditions required to earn the top deposit rate, and look for any unexpected fees.

If you feel more comfortable with a traditional bank, then stick with it. Good money management is about what works for you – not following a hot new trend.

Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.