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Article Neo-Banks

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Since the appearance of the Neo-banks, many are the prejudices that their customers undergo. We are witnessing a strong increase in complaints against these banks.

In order to better understand the notion of “Neo-bank”, this article will first define the notion of neo-bank (1), then consider the nuance between the different banks (2) in order to present the risks faced by Neo-bank account holders (3). Finally, it will be necessary to see what actions can be taken by the victims of Neo-banking for the reparation of their prejudices (4).

1- Definition of a neo-bank

With globalization, the digital revolution is now impacting all economic sectors, including the banking sector.
The appearance of dematerialized banks in the banking and financial sphere is constantly growing. This is the case of Neo-banks. What is a Neo-bank?

A neo-bank is a completely dematerialized bank that offers only online services. These include :
– The instant opening of an online current account without any major constraints.
– A bank card to make transfers, limited cash withdrawals via ATMs, online purchases or in stores.
– The implementation of a mobile application for the management of the customer account.

The particularity with this category of banks stems from its easy access to all and the much simpler conditions of use and management.

Several neo-banks have been created in France and in Europe.

In France, we can mention for example the Neo-bank ECKO, the Neo-bank Qonto, the Neo-bank Shine, Orange Bank etc.
In Europe, we can mention N26 in Germany, Revolut in England or Bunq in the Netherlands.

With the arrival of these dematerialized banks, there is a tendency to equate them with traditional banks.

However, in practice, Neo-banks, classic or traditional banks and online banks have their differences.

What is the difference between these three categories of banks?

2- The difference between a Neo-bank, a classic or traditional bank and an online bank.

If it is undeniable that the three notions are confusing, there is indeed a distinction both at the level of the statutes (a) and at the level of the services offered (b).

a- Difference in the statutes

A classic or traditional bank is a bank that has physical branches.

An online bank is a 100% dematerialized bank and is attached to a physical or traditional bank. This is the case of hello Bank of the BNP.

A neo bank is a 100% digital bank without any physical branch. It is not attached to any agency, any physical bank, unlike an online bank.

Moreover, the neo-bank is a payment institution that does not have a banking license.

While some have a banking license that gives them the status of a credit institution, they do not have a physical branch: this is the case of N26 or Revolut. Others do not have a license and are qualified as banking intermediaries, or in other cases, may have an approval from the Autorité de contrôle prudentiel de résolution (ACPR).

The online bank has a license. It is an online extension of a traditional bank. It is a real digital financial institution, attached to a bank.

b- Difference in the services offered

Online banks offer much more extensive services than the neo-bank. This is the case for the opening of current accounts, savings accounts, credit, insurance, overdrafts, etc.
However, the neo-bank only offers a current account, a credit card and a mobile application. Neo-banks focus on simplicity of use and innovation.

As we mentioned above, making the nuance between these banks allows us to apprehend the prejudices of which the customers of these Neo-banks can be victims.

3- Risks inherent to the operation of a neo-bank

It must be noted that, although innovative because of its simplicity in the use and management of the client account, and its access conditions, the recourse and use of the neo-bank is not without risks.

As a client of a Neo-bank, you can be confronted with certain account malfunctions such as: blockages, account closures without delay, disappearance of money from your account etc.

The most dramatic example is the case of N26 customers whose accounts were abruptly closed.

On September 2, 2022, the neo-bank N26 was sued by many customers who demanded compensation for the damage suffered due to the blocking of their accounts for several months without any explanation.

It is obvious that the financial and moral damage suffered by these customers is enormous and this risk remains ever present for future customers of these banks.

We can also give the example of the Chime bank in the United States. The latter suddenly closed the accounts of several people without warning. The clients concerned saw all their fortunes and savings disappear overnight without explanation.

There are other risks associated with the use of a Neo-bank: this is the case of the bankruptcy of a Neo-bank.

It can happen that the Neo-bank in which you have a bank account goes bankrupt. In this case, what happens to the funds you hold in this bank? How is the money deposited on your mobile applications guaranteed? If this bank fails, what happens to your money? Will you get your money back?

In most cases, the customer is seduced by the less complex use and access conditions of this bank and forgets to ask about the status of this Neo-bank and the guarantee it offers in case of bankruptcy.

Indeed, you should know that some Neo-banks that do not have banking licenses do not benefit from the €100,000 deposit guarantee contrary to classical banks that have the status of a credit institution and, therefore, benefit from this deposit guarantee.

Thus, in case of bankruptcy of the Neo-bank benefiting from this status, the client holding the account of this Neo-bank will be compensated up to a maximum of 100 000 € and within seven days. Otherwise, the customer is unable to recover his funds. No protection is then guaranteed.

This is the case of the Lille-based neo-bank Swoon, which went bankrupt and the five hundred clients of this neo-bank were unable to recover their money. This situation has caused hundreds of victims with heavy financial consequences.

What actions can be taken by the victims of a neo-bank or online banking?

4- Actions to be taken by the victim to repair his damage

When you are the victim of a blocking of your accounts or of the sudden disappearance of your money, or of the closing of your account without any balance and without any explanation in spite of the justifications provided within the deadlines, it is necessary in the first place to appeal to the mediator of your bank.

If you then wish to obtain compensation for the prejudice suffered, the reimbursement of your debt and claim damages, it is necessary to call on a lawyer.

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