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  • Considerations Regarding FinTech Bank Accounts

    2020 - 03.25

    banking with fintech app

    Before you make the decision which FinTech bank is suitable for you, you should know some important points. Therefore, in the following sections we will explain all important information about a FinTech Bank.

    What are FinTech Banks and how do they work?

    The term FinTech has become a kind of buzzword in the financial industry and is used as a headline for technological innovations in this field. FinTech stands for financial technology.

    FinTech banks, often also called virtual banks or neobanks, refer to companies in the financial technology sector. For some time now, these companies have been revolutionising the market with innovative solutions and are attempting to improve existing processes in a targeted manner. These include user-friendly apps or the simplification of transactions.

    In contrast to traditional banks, FinTech banks are much more flexible. For example, an account can be opened completely online in just a few steps. This especially useful if you decide for a Business bank account with such a virtual bank as it only takes couple of minutes to get a Monese, N24 or Revolut business account, to name a view examples. No time consuming application at a local bank branch where you need to show your business plan and go trough a consuming conversation with a  bank clerk in order to get the business account set up for you. Also read this article about whether you should have a separate business account as a Freelancer or not.

    In Germany, a banking license is required for every bank-like business. This is a high entry hurdle for most providers. For this reason many FinTech banks depend on a cooperation with traditional banks if they do not have a banking licence themselves.

    With a company valuation of 2.3 billion euros, N26 Bank is currently the most valuable German FinTech start-up.

    What other Areas are there in the FinTech Sector?

    The FinTech sector covers a wide range of applications and technologies, virtual banks (investment, banking and payment transactions) are only a part of it.

    In the following section we will give you a brief insight into some other areas of the FinTech sector. Many companies also offer product combinations from the different areas.

    Investment

    In the FinTech sector, in addition to offering banking products, there are also some providers who offer securities accounts as part of their services. Such an online broker enables investors to trade securities on the stock exchange. Providers for this are for example Flatex or Fintego.

    Insurance

    Another sub-sector of FinTech is insurance, also called InsurTech. The term is inspired by the two words insurance and technology and describes the use of technological innovations to make innovations from the insurance industry more effective and efficient.

    Crowd Investing

    Crowd investing is a sub-sector of crowdfunding and refers to the association of many investors via the Internet. The aim is to jointly finance a large and usually cost-intensive project and thereby achieve a return on investment.

    An example of a crowd investing platform for real estate is Exporo. Here investors can invest in existing real estate or financing projects.

    Social Trading

    With social trading, investors can observe the trading behaviour of other investors such as professional investors and adapt the respective investment strategies or the entire portfolio.

    In Germany, social trading mainly takes place on the platforms of market leaders Wikifolio, eToro and Ayondo. One of the biggest differences between these platforms is the products that can be traded there (3).

    For example, the provider eToro provides a multi-asset platform which enables trading in shares, cryptocurrencies and CFDs, among other things.

    How do you open an Account with a FinTech Bank?

    FinTech banks do not have branches. You can open an account on the homepage of the respective provider.

    To open an account with a FinTech Bank, you usually need the following documents:

    An identification document. To confirm your identity a current identity card or passport is required.

    A proof of residence. To prove your current residence you also need a document on which your name and address are visible.

    For example, a current electricity, telephone or internet bill or a bank statement with your name and address can be used.

    To open an account you need to provide some personal information such as name, address, birth and contact details and upload the required documents. Finally, your identity is usually verified by means of a Video ID process. You should have a valid identity card or passport ready for this.

    How secure are FinTech Banks?

    In this section we will discuss the security of FinTech banks. The security factor is composed of the security by the bank and the security during login and transactions.

    Security by the Bank

    Here you should make sure that your capital is at least covered by the statutory deposit insurance.

    This is especially important for your money in overnight money and current accounts, as well as in a savings account or the clearing account of a securities account at the relevant bank.

    Within the European Union, bank deposits of up to 100,000 euros per customer and bank are protected by law. The following video explains how the legal deposit protection works in theory.

    In addition to the statutory deposit insurance, there are further safeguards for customer deposits, for example through private deposit protection funds, depending on the bank.

    Security for Login and Transactions

    The second important factor is security for login and transactions. In order to guarantee this, the FinTech Bank should have taken at least the following precautions. A login in the account area should always be done with a user name or number and a self-chosen password.

    In addition to entering a password, a further proof of identity should be carried out. Thus, most banks use a two-factor authentication (2FA).

    Here, an additional identification code is requested, which is sent to a previously verified second device of the customer. This can be done, for example, to confirm a transaction or when registering a new device or browser.

    What Costs are incurred by a FinTech Bank?

    The costs and fees at FinTech Banks are usually much lower than at traditional banks. However, the amount of costs and fees can vary from provider to provider. You should pay particular attention to the following costs before opening an account:

    • Account opening fees
    • Account management fees
    • Fees for domestic transactions
    • Fees for transactions abroad
    • Fees for credit cards
    • Fees for online payments
    • Debit interest (overdraft interest)
    • Fees for topping up a card
    • Charges for inactivity
    • Fees for other services

    In addition to the possible costs and fees listed here, the banks may occasionally charge further fees. You can get the best overview in the price-performance list of the respective provider.

    Which Advantages and Disadvantages do FinTech Banks have?

    In this section we will compare an account at a FinTech Bank with the alternative of an account at a traditional branch bank.

    Here a FinTech Bank has some advantages as well as some disadvantages. These are briefly listed below. Afterwards we will elaborate each point further.

    Advantages

    FinTech banks enable you to open an account easily and quickly. With most providers you can open an account with just a few clicks and completely online.

    Furthermore, FinTech banks offer many innovative services, such as various apps, worldwide access to your finances directly from your smartphone or the improvement of various processes.

    Another advantage is the usually low costs and fees of FinTech banks. With most providers there are no account opening and account management fees. Furthermore, many FinTechs enable the worldwide and free withdrawal of cash.

    Disadvantages

    A disadvantage of FinTech banks can be the customer service and support. Since FinTech Banks are mostly young companies, the costs must be kept low.

    Often the personnel is therefore saved. Thus many FinTech banks do not offer support by telephone or this has to be paid expensively.

    Traditional banks have a bank licence. This protects customer deposits of up to 100.000 Euro in Germany. However, many FinTech banks do not have a banking licence and work together with partner banks.

    Here you should pay attention to the location of the partner bank and whether it has a deposit insurance or similar protection measures.

    What FinTech banks are there?

    On the European market there are many other FinTech banks and companies. In the following we will briefly introduce the four others.

    Spendesk

    Spendesk is focused on the area of corporate business expenditures and combines all output processes in one place. For example, the company supports the control of online purchases using virtual credit cards, the simplification of expense reporting, subscription management or the simple payment of invoices.

    Cler

    The Swiss company Cler specializes in simplifying banking. Only with a smartphone can all processes be controlled via app. In addition to various accounts and cards, the possibility is offered to save or invest money. Mortgages and loans are also offered.

    Revolut

    Revolut enables you to send and change money quickly and cost-effectively. Also crypto currencies can be exchanged here. Further with Revolut the free money withdrawal at each location is made possible. In addition, Revolut also offers various insurances such as mobile phone or foreign health insurance.

    Tomorrow

    Tomorrow offers a sustainable current account for the smartphone. This means that every payment at Tomorrow promotes climate protection. With the Impact Board, the effect of the money can be tracked directly. The company does not charge any basic fees, the use of the app and the current account is free of charge.

     

    Purchase Criteria: With these Factors you can compare and evaluate FinTech Banks

    Before deciding on a FinTech Bank you should consider a few things. The following factors should be considered:

    • Offer
    • costs and charges
    • Security
    • Customer service and support
    • Additional services

    In the following sections we will go into the above-mentioned points in more detail.

    Offer

    The most important point when choosing a FinTech Bank is the product range. Here you have to ask yourself the question, which service you would like to use from the provider.

    In the following we give you some examples

    • Current account
    • Overnight deposit account
    • credit card
    • Business account
    • Securities account

    With this criterion you can already exclude some providers. Because not everyone makes all these products available.

    Costs and fees

    After selecting an offer, the costs and fees of the respective FinTech banks are another important criterion. We have already presented these in a previous section.

    Security

    For security, you should choose at least one bank that is based in an EU country to benefit from European investor protection. Furthermore, you should make sure that you meet the points we have presented:

    • Security by the bank
    • Security for login and transactions

    At the FinTech banks recommended by us, these points are fulfilled by default.

    Customer Service and Support

    Another criterion for assessing a FinTech Bank is good customer service and support. Since virtual banks usually do not have branches, the service should work well elsewhere. Ideally, you should be able to reach the service staff in a variety of ways.

    At many FinTech banks the support and customer service is one of the weak points.

    The FinTech Bank should ideally have the following contact possibilities:

    • Phone
    • E-mail
    • Contact form
    • Live chat
    • Fax
    • Postal

    Also relevant are the times when you can reach the support. Some banks also make their service available on Sundays and public holidays. For some investors it may be an additional advantage if the support can be provided in several languages.

    Additional Services

    The last point are the additional services offered by FinTech bank. Additional services offer the providers the possibility to stand out from the competition as they have a great influence on the customers’ buying decision. The following additional services can be relevant:

    • Discounts for new customers
    • Offers for existing customers
    • Free change service
    • Insurance included

    The points listed here are only intended to give you an idea of what is meant by additional services and can be supplemented at your discretion by other services that are tailored to your needs.

    What else you should know about FinTech Banks

    In the following sections we answer many more questions regarding FinTech banks.

    Is it useful to register with a FinTech Bank?

    Whether it makes sense to register with a virtual bank cannot be answered with yes or no. In order to be able to compare the different virtual banks with each other, it is worthwhile to make a comparison using the purchase criteria we have selected.

    Additionally you can make your selection by looking up how long the FinTech Bank has been on the market. It is probably safer to go to a provider that has been on the market for a few years than to a start-up that has only recently been established.

    Many companies offer the basic versions of their services for free or offer the possibility to test them with a demo account. If you are not sure if a FinTech bank is suitable for you, you can test it with most workers at low risk and free of charge.

    How do you cancel your Account at a FinTech Bank?

    If you no longer wish to use the services of FinTech bank, you should cancel your account. At most  virtual banks the process is relatively similar and simple.

    Usually a simple letter to the bank is sufficient as long as you have not signed up for a subscription or similar. You should have transferred your remaining balance on the account to another account before.

    Some providers also provide appropriate cancellation forms. You can often find all information about cancellation in the FAQs of the providers.

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