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Brinks collects the cash and Netevia ACHs the money to
accounts at a merchant’s designated financial institution. Neobanks earn much of their

Netevia’s partner banks are New Jersey-based Cross River money from interchange
Bank and Ohio-based Sutton Bank.
on debit cards issued to
Vlad Sadovskiy, Netevia's CEO, is betting that ISOs will
be attracted to the additional residual opportunities that customers.
come from selling banking services. These include inter-
change from transactions using the debit cards issued to
merchants, as well as residuals on merchants’ banking ac-
tivities, like deposits made and funds kept on deposit. neobanks that process payments to the same supervisory
exams that banks and credit unions undergo.
"We’re as close to being a bank as any [institution] can be,"
Sadovskiy said. "We may not be on the same level as Chase Initially, only the largest companies—those processing
or BofA, but we can definitely compete with credit unions more than 5 million transactions annually—would be sub-
and local banks." ject to CFPB regulation. Seventeen fintechs would qualify
for regulation, including the big three, PayPal, Apple and
Shepherd suggested that over time ISOs and agents sell- Google, the CFPB said.
ing banking services will earn as much, if not more, from
those services as from their traditional merchant portfo-
lios. Meanwhile, the bipartisan Shadow Banking Loophole Act
Profitability is elusive was introduced in the Senate to ban nonbank financial
entities from operating like banks, and benefiting from
"Neobanks are having a lot of success getting customers federal deposit insurance, without federal regulation.
to open accounts, but very few are making any money," That legislation would directly affect Square, which oper-
said Christoph Stegmeier, senior partner at the global con- ates state-chartered financial institutions and qualifies for
sulting firm Simon-Kucher. The firm's data indicates there FDIC insurance up to $250,000.
were about 400 neobanks globally in late 2022, which,
combined, served more than a billion clients. The act, spearheaded by Senator Sherrod Brown, D-Ohio,
chairman of the Senate Banking Committee, would ap-
However, the consultancy added, the number of new neo- point the Fed to regulate Square and similar fintechs in
banks launched last year, 36, barely outnumbered the 34 the same manner it regulates bank holding companies.
that were either acquired or shut down.
"Letting big tech and commercial companies operate banks
According to Simon-Kucher, Brazil counted the most neo- without proper oversight will only open doors for preda-
banking customers, 217 million in 2023. And Brazil and tory lending, invasions of consumer privacy and broader
the United States reported the most total revenues ($15.8 financial instability," Sen. Brown said. Senator John Ken-
billion for Brazil, $12.3 billion for U.S. neobanks). nedy, R-La., a co-sponsor of the legislation, added, "Allow-
ing companies to run their own full-service banks without
Evidencing the difficulty of charting a successful course effective oversight puts individual Americans and the U.S.
in neobanking, HMBradley, a neobank catering to savers, financial system at risk."
just shut down its consumer operations to focus on pro-
viding its technology to mainstream banks. The Bank Policy Institute (which represents banking and
consumer groups) urged lawmakers and policy makers to
"Banking is ripe for disruption and now more than ever close the loophole "before it is further exploited by firms
banks are looking to deliver world-class customer expe- seeking to gain the advantages of an FDIC-insured bank
riences," HMBradley CEO Zach Bruhnke wrote in a No- charter without the concomitant supervision and regula-
vember 2023 letter announcing the change. "The coming tion that Congress has established for corporate owners of
decade promises exciting advancements for customers." full-service insure banks."
What about regulation? The likelihood of such legislation passing in the remain-
While neobanks are not directly regulated—aside from ing days of the 117th Congress is slim.
having to abide by know-your-customer and other anti-
money laundering rules—a movement is afoot to change Patti Murphy, self-described payments maven of the fourth estate, is
that. For now its focus is on the largest players. senior editor at the Green Sheet. She also co-hosts the Merchant Sales
Podcast, and is president of ProScribes Ink (www.proscribes.net).
The Consumer Financial Protection Bureau stated in No-
vember 2023 that it wants to subject large fintechs and
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