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CoverStory

Neobanks tend to be niche-oriented and typically are
not regulated as banks. The neobank Chime, for exam-
Unlock Your ple, provides basic banking services to consumers who
may not be able (or willing) to pay monthly mainte-
Growth Potential nance and other bank fees. It offers a high-yield savings
account, no monthly fees and fee-free overdraft protec-
tion. As is the case with all neobanks, funds are held
at FDIC-insured banks (Bancorp N.A. and Stride Bank,
With a BCP Loan N.A in the case of Chime).

Chime stands out among its peers by enabling custom-
ers to link all their accounts within the Chime app,
which is said to amp up customer engagement. The con-
sultancy McKinsey & Co. noted in its report Building
a winning AI neobank that customers who link non-
Chime accounts to the app typically spend more money
using their Chime debit card than they spend using
other cards loaded into the app.

Some neobanks focus on businesses and professionals.
Neobanks "have gained favor among businesses due
to their agility and tailored financial services, such as
seamless payment processing, real-time transaction
monitoring, and simplified expense management,"
Market.us wrote.

Karat Financial, based in San Francisco, caters to con-
tent creators and influencers. Last year it snagged $70
million in funding from a group that included celebri-
ties and video game companies. Underpinning Karat's
success, the company said, is its innovative underwrit-
ing model, which can measure the unique creditwor-
thiness of creators by analyzing their spending and de-
posit activities.

Neobanks earn much of their money from interchange
on debit cards issued to customers. The Durbin Amend-
ment to the Dodd-Frank Act required the Federal Re-
serve to cap debit card interchange.

The cap applies only to the largest banks, however,
which also are the largest issuers of debit cards. Banks
with $10 billion or less in assets, like Chime's partner
BOCA banks, are exempt. (Bancorp had total assets of $7.466
CAPITAL billion as of the third quarter 2023; Stride had $3 bil-
PARTNERS lion.)
In 2023, the average interchange for unregulated debit
processed over dual message networks (like Visa and
Get a loan from $100,000 to Mastercard) was 52 cents, more than twice the average
for regulated debit, according to the Fed.
$5,000,000 for your ISO today New neobank targets ISOs

Netevia Banking, a neobank catering to SMBs, launched
in 2023 with plans to leverage the ISO channel to reach
Call Now: 844-531-4957 those businesses. It even has an arrangement with
bocacapitalpartners.com Brinks to put smart safes in merchant locales to expe-
dite cash deposits.

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