Challenger Banks Vs. Neobanks Vs. Traditional Banks ,And The Difference Between AML & KYC
Challenger Banks vs. Neobanks vs. Traditional Banks
And the Difference between AML & KYC
Sources have been extrapolated from: fintechmagazine.com, google.com, complyadvantage.com,
To get a better understanding of the subjects here let me define them one by one. What is the difference between a Neobank, and a challenger bank is that they are one in the same? They are financial technology companies which offer to get your banking services done using a mobile app on your cellphone, or website. These are alternatives to traditional banking. This is better known as (fintech). Though there aren’t any physical branches, still all the banking services can be conducted online.
It has been rumored that this concept is the next best, and big thing! These new entities to the banking world both Neo as well as Challenger banks have massive potential and their growth is exceptional, while being measured of a decade. The numbers speak for themselves when an estimated 46%, Compound Annual Growth Rate (CAGR). By 2025, it is projected to top $356m by the year 2025. The success of both two have been established. With a growing customer base what they have achieved is a growing customer base.
What is digital banking? In short it is the future of banking. Being that they are cloud based. They can reach out to their customers via mobile apps and the web. This is a simplified solution for startup companies, and SME’s. The first banks to launch this concept were both Atom Bank and Monzo. Seeing the popularity and success of this idea Moven, Starling, Chime and Volt and N26 all followed suit.
The perks of a Neobank are the flexibility and being able to access an extensive range of services. Services such as automated accounting, payroll and expense management could all be addressed. Solutions allow APIs to integrate work overflows of business along with banking requirements.
It is not mandatory that Neobanks have a banking license. Something to think about. For backup, a partner bank is waiting in the background. Therein lies the reason traditional banking services are becoming “old hat”.
A challenger bank is streamlined technology. It serves a dual purpose of being a fintech operation as well as the traditional “brick and mortar” which you can walk into. An estimated 100 challenger banks are in operation.
Though each hold a banking license each can offer traditional, as well as digital options. Nowadays it’s all about time management and convince. These services are readily available, but the setback for brick and mortar it that when you need them, they are always at your disposal.
Names of current “leading” challenger banks are, MyBank, Amicus, Tandem, Metro, Revolut, and Allica.
There is a big difference between KYC vs. AML. AML, or anti-money laundering place a mandated world - wide monitoring and screening on financial institutions. These include the ‘KYC” process. Which stands for (Know Your Customer). A risk-based approach is taken when an AML is investigated. It will be determined if there would be a money laundering risk, and most important, whom their customers are. EDD, Enhanced, Due Diligence would be initiated when perpetual monitoring procedures would be conducted, identifying the source of customer funds, when additional identification materials would be needed, and putting them under a microscope to watch the purpose and nature of business relationships closely.
Is KYC the safety net for AML? It is up to the customers to be forth worth about whom they claim to be and what is their intention. By investigating their background, the beneficial ownership can be established. The information gathered must match both the firm’s information on them and the customers risk profile. There should be open lines of communication between the process and program. KYC software will reduce human error.