Neobanks in Deposit insurance category in Germany
Differences between banks and other FinTech
Financial services institutions, such as e-money institutions, lenders, financial firms, etc. and neobanks are both part of the rapidly growing FinTech industry across the Globe.
However, there are important differences between "true" neobanks and "other" FinTech institutions. For example, e-money institutions, also known as electronic money institutions or issuers, are predominantly licensed to issue e-money that can be used for payments. On the other hand, neobanks are licensed and regulated credit institutions that operate under the respective legal and prudential framework and are subject to robust regulatory oversight and deposit protection for retail
What is the difference between banks and "neobanks"?
One of the main differences between FinTech institutions, such as e-money and other financial services firms and proper "neobanks" that have a credit institutions license is the extent to which retail clients' deposits are protected by respective deposit protection schemes.
Deposit protection schemes are government-backed deposit insurance schemes that provide deposit insurance to protect depositors in the event of the insolvency of a bank or a financial institution. In the United States, for example, the Federal Deposit Insurance Corporation (FDIC) is responsible for insuring deposits at FDIC-insured banks at up to $250,000 per depositor per account. In the EU, depositors are protected at up to EUR 100,000 per depositor per account. In the UK, customer deposits held by banks and credit unions are protected up to £85,000.
Is the money with the neobank protected by a deposit protection scheme?
It really depends. Neobanks are typically licensed banks that are covered by the respective deposit protection or deposit insurance program. However, some FinTechs, such as e-money institutions and financial firms are subject to less regulation and do not offer their customers deposit insurance program. In such a case, e-money institutions may be subject to other types of deposit protection schemes or regulatory requirements. Such regulations may vary depending on the jurisdiction.