What a neobank is
A neobank is a financial provider with no branches, run through an app, usually founded in the last fifteen years. The word describes a business model, not a legal status. Some neobanks hold a full banking licence and are supervised like any bank. Others are payment institutions or electronic money institutions: licensed and supervised too, but under different rules and, crucially, without deposit insurance. From the outside the apps look the same.
The licence, and why it matters
A bank, a credit institution in EU law, takes deposits. Your balance is a deposit covered by the deposit guarantee scheme of the bank's home country up to €100,000 per depositor. N26 is a German bank supervised by BaFin. bunq is a Dutch bank supervised by De Nederlandsche Bank. Revolut's European customers are with Revolut Bank UAB, a Lithuanian bank, and are covered by the Lithuanian scheme. A payment institution or e-money institution, such as Wise's European entity, may not take deposits; it must safeguard your money in a segregated account at a bank or in low-risk assets. Safeguarding protects you if the fintech fails, not if the bank holding the funds fails, and there is no €100,000 guarantee.
The licence is stated in the provider's terms and can be verified in the European Banking Authority's registers, which list every credit institution, payment institution and e-money institution in the EU. Search the legal name, not the brand.
Everyday differences
Fees. Neobanks built their market on free or cheap accounts, instant notifications, and currency conversion close to the interbank rate; traditional banks are catching up but usually charge more per month and more abroad. Cash. A branch bank handles deposits and large withdrawals at the counter; a neobank relies on ATM networks and partner shops, with monthly limits on free withdrawals. Credit. Traditional banks offer overdrafts, personal loans and mortgages as a matter of course; licensed neobanks offer some, payment institutions almost none. Service. Neobanks answer in-app, sometimes only in-app; if you value a person you can call or visit, that is a real difference.
Frozen accounts
Every provider must monitor for money laundering and may freeze an account while it investigates. Neobanks, with automated systems and high volumes, have a reputation for freezing more readily and explaining less, and for asking for documents through the app with no one to call. A freeze is not a loss: your money remains yours and must be released or formally reported. But if your salary lands there and the account is your only one, a two-week freeze is a serious problem. Many people keep a neobank for daily spending and a traditional bank for salary and savings for exactly this reason.
What is the same
The EU payment rules apply to every licensed provider. Your IBAN, whatever its country code, must be accepted for euro payments and direct debits across the EU. Instant transfers must be offered at no more than the price of an ordinary transfer. Unauthorised transactions must be refunded, with your liability capped at €50 unless you acted fraudulently or with gross negligence. Every provider must publish a standard fee information document and handle complaints within set deadlines. A foreign IBAN from a neobank is as valid for your salary and rent as a domestic one from a branch bank.
Choosing
Start with the licence and the guarantee that follows from it. Then match the provider to the job: a low-fee, licensed neobank for travel and everyday spending; a traditional bank where you need cash, an overdraft, a mortgage or a person to talk to. Compare on the fee information document: monthly fee, card, ATM withdrawals at home and abroad, currency mark-up, and what an overdraft costs. Two accounts at two kinds of provider is a perfectly reasonable answer.
