What is digital bank or neobank?

What is digital bank or neobank? Simply put, it is a financial company created to provide financial services, which operates mainly in a mobile application and offers fast, convenient and usually more affordable so-called everyday banking services compared to conventional banks. Digital banks are especially popular among young and technology-savvy customers who are prone to use innovative services.

Popular digital banks

Estonians are familiar with digital banks mainly thanks to Wise. The company, which became Estonia’s unicorn in 2015, was originally called TransferWise and focused on affordable international payments. Introduced after the rebranding, the name Wise refers to a wider range of services. Wise’s greater focus on international payments and the management and use of multiple currencies still differentiates Wise. Wise has 10 million customers worldwide and is one of the fastest growing fintech companies in Europe.

In our region, Revolut and N26 have attracted attention in everyday banking. Both are known as typical digital or neo banks, which are mainly based on the use of mobile applications and offer a wide range of services. In addition, both banks emphasize the simplicity and playfulness of financial affairs, which is generally characteristic of all digital banks.

Revolut was founded in the UK in 2015, and today the company has more than 15 million customers worldwide. In an interview for DigiGeenius last November, Revolut CEO Nik Storonsky announced that they have 67,000 users in Estonia, 250,000 in Latvia and as many as 390,000 in Lithuania.

A wide range of different services are available in the Revolut app. Of course, the simplest and most basic is to open bank account, review the funds on it and the transactions made. Anyone who wishes can also order a physical card, just like from a regular bank. The app can also create both a one-time virtual card and a so-called permanent virtual card with Apple Pay and Google Pay support. That way you can start paying in the store right away.

Revolut offers over 50 services and their selection may vary from country to country. Almost all Revolut services are available in Estonia: tools for payments, investments, savings, services aimed at children, etc. The only services that have not yet arrived here are credit-related: loans, credit cards and so-called buy-now-pay-later solutions, which Revolut is currently testing in its first test markets.

Next to Revolut, another popular digital bank in our region is N26. The company, which was founded in Germany ten years ago, offers bit fever services, but still covers everything important from the point of view of everyday banking. You can create IBAN accounts, order physical and virtual bank cards, plan finances. Insurance-related services are also offered.

As previously mentioned, digital banks are primarily used by younger and more tech-savvy people. N26 attracted attention in Estonia by being the first financial company to issue bank cards with Apple Pay support in Estonia. This is how the N26 bank card found its way into the wallets of many early adopters.

Conventional banks learn from digital banks

Traditional banks in Baltics are very innovative, especially compared to financial institutions that have been operating on the market for several decades. It is clear that traditional banks have drawn ideas and inspiration from digital banks when developing mobile applications, especially in terms of ease of use and simplicity. However, certain differences have remained – even if traditional banks offer similar services, digital banks can be more youthful and seem closer to the user.

Digital banks that are gaining popularity have also reached thousands of e-shops in Baltics. MakeCommerce merchants can accept payments from both Revolut and N26 customers. Similar to customers of traditional banks, Revolut and N26 customers can pay for purchases in the e-store in two ways: by bank payment or card.

Since the beginning of this year, the merchants of MakeCommerce have been able to accept bank payments directly from Revolut and N26 accounts using the payment initiation service. This is good news for the merchant. First, it expands payment options in the online store. Secondly, paying directly from a bank account is significantly cheaper than traditional card payments.