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Neo-Banks are recent arrivals in financial services with a number popping up internationally in the last 5 years.

The defining characteristic of Neo-Banks is that they are digital only with no bricks and mortar presence. They have been built from scratch to provide customers with a seamless user experience without relying on the technology and infrastructure that traditional banks have been built on.

To get around banking regulations, many Neo-Banks have launched offering pre-paid debit cards linked to an app as the sole product. This allows them to go to market without having to meet many of the regulatory requirements that are imposed on banks. However, with that app comes with a high level of functionality to manage spending patterns, alerts and payments between friends and savings goals.

As Neo-Banks evolve, they are then able to branch out into other personal finance, like personal loans and mortgages, looking to undercut the established financial institutions on rates. They can offer cheaper rates as they don’t have the same high costs as running an old school bank.

In overseas markets like the UK, a move towards an open banking regime means that banks are required to securely share customers’ financial data with other financial institutions provided the customer has given permission.  This has helped drive innovation in the sector with new ventures popping up to offer alternative ways for consumers to manage their finances.

In Australia, financial services look ripe for disruption after the Australian government released its open banking review. Two of the key principles of the review are creating opportunities and encouraging competition, which are encouraging signs for the prospects of Neo-Banks in Australia.