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Jenius Bank vs a Neobank: How We’re Different

Jenius Bank vs a Neobank: How We’re Different

Jenius Bank Team2/10/2023 • Updated 11/8/2023
Venn diagram with neobanks on one side and Jenius Bank on the other

While neobanks and Jenius Bank share some traits, there are some significant differences between the two.

Your money is important to you, and where you choose to bank could impact your access to growth opportunities and even the security of your hard-earned savings. When trying to choose the right bank for you, there are dozens of options to choose from. Over the past few decades, new players, like digital banks and fintechs, have entered the marketplace.

Keeping up with all the different options, and lingo, isn’t easy. One of the newer terms you may have heard is something called a neobank. But what is a neobank? Is it really a bank? Where does it fall in the mix?

Let’s explore different types of financial service providers to understand where the neobank fits; then,with the help of Jenius Bank CEO John Rosenfeld, we’ll highlight how Jenius Bank is different from a neobank, and why that matters to you. 

Traditional Banks, Digital Banks, Neobanks — What’s the Difference?

The best way to understand more about your bank, and its advantages and disadvantages, is to demystify the words used to describe it. It seems like the term bank should be straightforward, right? You may be interacting with organizations that offer bank-like services, but that doesn't mean those organizations are actual banks.

What do we mean when we say, “actual bank?” It all centers around the bank charter.

What is a Charter, and Why is it Important?

A banking charter is essentially a license from a state or federal government saying that the company can offer certain financial services. Charters are granted after an approval process where banks must show that they have enough money for bank operations, growth, and potential risks.

They also must submit a strategic plan that includes specific goals for different products, back-up plans for potential problems, and projections on how and when the bank will profit. Most states require banks to show a plan for profitability within five to ten years, to prove that the business will be healthy and able to serve customers consistently.

According to S&P Global, only four new banking charters were approved in 2022. It often takes a company three to five years to go through the intense chartering process.¹

A charter gives banks multiple benefits, including a lower cost to do business because they can use deposits to fund lending products, and FDIC protection on deposit accounts, like checking and savings accounts.

FDIC insurance is backed by the U.S. government and protects your money in deposit accounts if a bank fails. It’s one of the most notable parts of having a charter. If an FDIC insured bank fails, depositors will have their money returned up to the maximum amount guaranteed by law.

Unchartered financial companies don’t have direct access to FDIC insurance, meaning you may not be able to get your money back if they go under. Keeping your hard-earned money in an unprotected account seems pretty risky to us.

Traditional Bank or Digital Bank?

Traditional banks are your parents’ and grandparents’ banks—they have physical branches where you can show up and receive money and services in person.

When you hear the term digital bank, you might think of a traditional bank’s website or mobile app. While traditional banks may offer these digital options, they aren’t digital-only, or even digital-first, which is the fundamental difference between the two categories.

The digital experience from traditional banks is often an afterthought and could result in poor user experience. On the other hand, digital banks put the digital experience first, meaning they focus on creating a flexible and streamlined user experience that is accessible on both mobile devices and computers.

Digital banks offer their products and services entirely online or through apps. Digital banks tend to offer better rates and lower fees on accounts, something usually attributed to the lower overhead they have versus brick-and-mortar institutions.

Fintechs: Tech Companies with Financial Products

Fintechs are non-bank companies that offer financial products and services and use technology to either enhance traditional offerings, like savings accounts, or to innovate new products/services, like in payments.

Some fintechs you may have heard of include:

  • Robinhood, an investment app

  • Venmo, a digital wallet facilitating money exchange

  • Klarna, a service that helps people break purchases into installment payments.

Fintech is a very broad category. A simple fintech won’t have products at all and just provides a service through an app. Customers link their bank accounts to the fintech’s app to access the service. Unfortunately, even if the service is compelling, the account integration may be problematic. The results can be a fragmented, and potentially frustrating, experience for the customer.

Neobanks are a more complex type of fintech. Neobanks are characterized by their digital-first presence and easy-to-use apps and websites. Contrary to their name, neobanks are not chartered banks, meaning they may lack certain protections and benefits, like FDIC insurance.

What is a Neobank?

Neobanks are the new kids on the block when it comes to banking. They are a high-growth part of the fintech space and look the most like traditional and digital banks when compared to other fintechs.

Most neobanks differ from traditional and digital banks in a few key ways:

  • Neobanks don’t have a bank charter

  • They partner with chartered banks to provide services

  • They aren’t directly regulated and audited by banking examiners

Neobanks also tend to be backed by venture capital firms, meaning they have to raise funds over time through funding rounds with external investors. This creates volatility because they don’t have guaranteed sources of capital to fund their business operations.

Additionally, VC-backed companies are usually beholden to their investors and point to growth as a critical success metric... a metric higher on their list than profitability. They may put attractive offers in the marketplace to drive that growth. But what happens when that neobank reevaluates its business model and prioritizes profits? Services decline and fees go up. The customer gets lost in the equation.

The growth focus also means that neobanks can burn through funding quickly and may struggle to succeed. This can cause them to go under suddenly and leave customers high and dry—without a charter, there’s no FDIC insurance to protect the funds in their account.

Neobanks also tend to have fewer product options to reduce their risks and keep costs lower—particularly with lending products like personal loans or mortgages. These limited offerings make it harder for consumers to continue banking at the same place as their financial needs evolve.

Some neobanks “grow up” and earn charters to become fully regulated banks, but this is a minority of cases. Jenius Bank is already sitting at the adults’ table as a division of Manufacturers Bank, a California state-chartered bank.

Partnering with Chartered Banks

Most consumers prefer not to place their savings in non-FDIC insured institutions. So, to compete with chartered banks, neobanks seek a way to offer this competitive benefit.

One way to get a charter is to purchase an established bank. Recently, some fintechs have gone this route. It’s faster than applying for a charter, which can take years. But the downside is the legacy systems that can come with the package. These acquired banks usually run on old core platforms that are tough to integrate with the latest technology.

It’s more common that a neobank would choose to partner with a chartered bank to provide banking services. The consumer thinks they’re opening an account with the neobank, but then sometime in the application process, they learn that their money is kept with a different, chartered institution.

These partnerships leave the neobank acting as an intermediary for its own customers and can cause a disjointed customer experience. For example, an account holder may receive statements from both the neobank and the partner bank. That can be frustrating and time consuming.

Neobanks often struggle to turn a profit due to their limited product offerings and reliance on interchange fees as their primary source of revenue. These fees are charged to businesses whenever a customer makes a purchase with their neobank debit card.

When neobanks struggle financially, it can be hard for them to invest in new products and experiences to improve customers’ financial situations. And, in a worst-case scenario, going out of business could leave their customers in a lurch.

5 Differences Between Jenius Bank and a Neobank

Venn diagram comparing Jenius Bank and neobanks

We’ll get into specifics below, but here are some quick hits on how Jenius Bank is different from a neobank.

Now that we’ve talked about the different banking options out there, let’s talk a little more about Jenius Bank and what makes us unique with some insights from our leader, John Rosenfeld. He’s been around banking and financial services for 20+ years, and Jenius Bank isn’t the first digital banking business he’s created. Spoiler alert: Jenius Bank is not a neobank. And he thinks that’s good news for you. Let’s explore why. 

Having A Charter Sets Us Apart

Like we said earlier, most neobanks don’t have a charter – and once they do, they stop being neobanks. The chartering process is important for a bank because it requires the institution to lay out its strategic plan and prove viability. 

According to John, “A lot of startup digital banks struggle to figure out how they’re going to get a charter. For the most part, charters are not easy to come by, so the fact that we have one provides us an enormous head start.” 

As the new digital banking division of Manufacturers Bank, Jenius Bank has been in regular contact with regulators to discuss our plans for innovative products and services, as well as our projections to become a sustainable and profitable bank. We’re bringing our customers the confidence and benefits that come with a charter alongside the fresh approach, and benefits, of a digital bank.  

Your Money at Jenius Bank is FDIC Insured²

Another privilege afforded to chartered banks is FDIC insurance. While many neobanks offer FDIC protections, this is due to partnerships with chartered institutions that have access to FDIC insurance. Any money held in an account by a non-chartered company isn’t FDIC insured. 

“You don’t want to play games with your money and neither do we,” says John. 

As the digital banking division of Manufacturers Bank, deposits to Jenius Bank accounts will be FDIC insured to the maximum allowed by law. This means you can sleep soundly at night knowing that your money is safe at Jenius Bank. 

We’ll Have a Suite of Products

As mentioned, most neobanks only offer one or two products to reduce their risk level and costs. While our first product will be personal loans, Jenius Bank has an exciting growth plan with a range of products, including savings and checking accounts, and other lending products. 

“Most fintechs or neobanks want a quick win,” says John. “Their investors want to see them grow a million customers to prove the concept, regardless of long-term potential and customer value.” He adds, “At Jenius Bank, we have a very long-term view.” 

Our future products will be based on our customers’ needs, trends based on our research, and feedback we receive.  

“We’re focused on building relationships with customers and using customer feedback to create the best possible banking experience,” says John. 

Additionally, as a digital-only bank, we’re saving money on physical locations. Our lower costs will be passed on to our customers. Some of this will be via higher rates on savings accounts, no minimum deposit requirement, and our no late fees on personal loans. 

We’re Drawing on SMBC’s 400-year History

Hey, sometimes being old is a good thing! Unlike neobanks, most of whom are less than 10 years old, we are the digital banking division of Manufacturers Bank, which is part of SMBC. SMBC is one of the largest financial groups in the world, with over $2 trillion in assets. Our connections allow us to draw on over 400 years of experience and expertise to create a unique digital bank. 

“We have an incredibly strong parent (company),” says John. “They believe in the vision. A lot of fintechs or startups don’t have the luxury of that level of investment and such a stable parent.” 

That said, our history doesn’t mean we plan to do things the old way. We have a digital-first mindset and will be using the latest technology to create a world-class experience for our customers.  

“We are building Jenius Bank on a core that’s only a few years old, whereas most of the banks in America are running on 30- to 40-year-old cores,” explains John. “They can’t possibly do many of the things that we will be able to do.” 

We’re Humanizing Digital Banking

Due to their digital-only platforms and lean, start-up like staffing, some neobanks lack the resources necessary to field customer service requests and make it difficult to find their phone numbers. 

“We’re here to help our customers, not hide from them,” says John. “If they want to speak with us, we will pick up the phone any day, any time. And our phone number will be boldly featured on our home page once we launch.” 

At Jenius Bank, we’re creating a network of customer service team members who are available 24/7 to assist our customers if they need it. We already have over 200 employees working to create a best-in-class product and our U.S.-based customer service team grows every week.

And our parent companies are committed to our growth and success. Not only are they committed to Jenius Bank, but they’re also committed to our customers.  

“We're doing things the right way, prioritizing your experience and needs,” says John.

Final Thoughts

Neobanks have pressured traditional banks to offer new products and improve digital customer experiences, bringing banking into the digital era. But these companies are often reliant on external partners or investors to survive.

Jenius Bank has the means and support to create a top-notch, digital-first customer experience while offering the same protections as a traditional bank. We can’t wait to open our virtual doors and help you be a Jenius with your money and live a richer life!

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