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  • Competing with Neobanks

Community Banks and Credit Unions Have Their Strengths



Following the Global Financial Crisis, a specific segment of banks has grown significantly. This category has several labels, including Neobanks, virtual banks, and challenger banks, but is defined by one common trait: an absence of branches. Take Chime, for example, which is perhaps the forefront American neobank. Chime offers a full suite of retail banking services, including checking and savings accounts, debit and credit cards, instant payments, and an expansive ATM network.



Where neobanks differ from traditional banks is that a customer’s entire banking relationship occurs online, largely on a mobile app. Customers do not have the option to enter a branch to speak with a teller, get a cashier’s check, or use a safe deposit box. Despite this, neobanks have seen impressive growth. There are two main reasons why: appeal of services offered and ease of customer acquisition.

See Charts 1 & 2 

 Chart 1 Chart 2



Neobanks offer a handful of products that have driven customer acquisition.

  1. Set-Up Convenience: with access to an app store, anyone can set up an account within minutes. You will then receive a debit card in the mail. No credit check is necessary.

  2. High-Quality Tech: Neobanks are known for investing in their software, particularly mobile apps. A pleasant mobile experience is important to the modern depositor. In contrast to many national banks’ bloated sites, neobanks focus on ease of use. Additionally, instant payment solutions are integrated, which are particularly popular among young customers.

  3. High-Yield Savings: Neobanks, and bank-like fintechs broadly, have begun offering high-yield savings accounts, with dividend rates approaching 5.00%. During 2022’s choppy stock market, these accounts became an increasingly popular place to park cash.

  4. Round-Up Savings: This feature goes by a few terms but put simply automatically rounds expenses up to the nearest dollar and saves the excess. For example, if I spent $9.75 with my debit card, $0.25 would be transferred from my checking to my savings.

  5. Buy Now, Pay Later: This is a new short-term financing option that serves as a small loan originated at the point of sale. This is popular for financing relatively inexpensive purchases such as clothing and electronics. They normally do not charge interest.

Neobanks pay nearly 1/50th pf what traditional institutions pay for customer acquisition.



Traditional banks often attract new customers through sponsorships, community involvement, campus events, and other high-cost means. Brick-and-mortar and face-to-face marketing are effective when prospective customers must enter a branch and speak with someone to open an account.

In contrast, when an account can be opened entirely on a mobile device, cost-effective social media marketing is viable. This allows neobanks to acquire new customers for much cheaper than traditional banks, fueling their growth.



The current state of Neobanks leaves a few key areas needing to be addressed.



One of the most common reasons for someone to visit a branch is to get a cashier’s check or send a wire transfer. Customers may use these for a variety of reasons, such as to pay a rental deposit or mortgage closing costs. This is a difficult task for those who use a neobank. For example, Chime customers must visit another bank’s branch and may pay a steep non-customer fee to receive a cashier’s check. Similarly, Chime does not support wire transfers, with any incoming wire transfer being returned to the sender. They suggest using a third-party service like TransferWise, providing unnecessary complexity for the depositor.



Although Neobanks tend to offer a full array of consumer deposit services, there are many other banking needs that they do not cater to. Chime, for example, does not provide the following: 

  • Safe deposit boxes
  • Auto loans
  • Personal loans
  • Mortgages
  • Home equity loans
  • Unsecured credit cards
  • Investment services
  • Financial planning
  • Insurance
  • Business banking in any capacity

If you are looking for a one-stop shop for all banking and financial needs, Neobanks cannot be that.



Likely the most common critique of neobanks is a lack of relationship with the bank. When depositors have issues such as overdrafts or fraud, it is critical to be able to speak with a representative quickly. At a traditional institution, this can be as fast as you can get to the branch. Alternatively, you would have to speak with someone on the phone. The larger the bank, the more difficult this is, worst of all at neobanks. This is an area where community banks and credit unions excel.



In the dynamic landscape of the financial world, community banks and credit unions stand as unwavering pillars of strength, tradition, and innovation. As neobanks rise, offering digital-first banking solutions, it’s the local institutions that have the opportunity to chart a course for a future where technology enhances, not replaces, the human touch.


Here are some concrete strategies to help stay ahead:

  1. Embrace Digital Innovation: Invest in cutting-edge technology to offer seamless digital banking experiences. This includes user-friendly mobile banking apps, which are essential for attracting tech-savvy customers who value convenience.

  2. Competitive Interest Rates: Offer higher interest rates on deposits to compete with neobanks and attract savers looking for the best returns on their money.

  3. Introduce Popular Offerings: Implement features like high yield savings, round-up savings, and Buy Now, Pay Later Services. Adding these will allow your bank or credit union to better compete.

  4. Streamline Online Account Opening: Ensure customers can easily open an account online or via a mobile app without needing to visit a branch. Simplifying this process can significantly boost customer growth.

  5. Maintain Personal Touch: Leverage your community bank or credit union’s personal touch. Offer personalized banking advice and maintain strong customer service. This human element is something neobanks cannot easily replicate.

  6. Offer Diverse Services: Continue to provide a broad spectrum of financial services, from traditional banking products to modern financial solutions. This diversity ensures you meet the wide-ranging needs of your community.


Community banks and credit unions frequently face tough choices, largely constrained by financial resources. The path to growth often starts with two key objectives: boosting revenue and trimming costs. At Ceto, we specialize in navigating these challenges. With a strong track record of partnering with over 2,000 regional and community banks and credit unions, we’ve consistently optimized financial performance.


Discover how Ceto can elevate your institution. Connect with us to explore more.

Ian Davis

Market Research Analyst
Hometown: Cumming, GA
Alma Mater: Kennesaw State University
Ian is a Market Research Analyst in Ceto's Market Research and Insights team. Joining in 2022, he has specialized in business and commercial banking research. Additionally, he has written for The Ceto Blog, discussing the changing landscape of banking technology. Currently, he also contributes to Ceto Nova development efforts.