More companies are entering the crypto neobank sector, aiming to leverage blockchain technology and decentralized finance (DeFi) to provide customers with quick transactions and attractive interest rates. Increasing regulatory clarity is facilitating the integration of cryptocurrency with traditional financial systems.
### The Rise of Crypto Neobanks
The emergence of crypto neobanks is capturing significant attention, with over six new financial applications launched in the past year alone. These neobanks are capitalizing on the shift toward clearer regulations and the tech-savvy preferences of younger consumers. “Today’s investors are predominantly digital natives,” remarked Zac Prince, managing director of GalaxyOne, a crypto neobank under Galaxy. “They are accustomed to banking through applications and seek a streamlined, modern platform that enhances convenience and offers complete transparency.”
### Understanding Neobanks
Neobanks represent a new wave of digital-only financial applications that have gained traction in the last ten years. Pioneers like Chime, Revolut, and Monzo have disrupted conventional banking by eliminating physical branches, which has allowed them to reduce overhead costs and provide superior interest rates compared to traditional banks. These digital banks have flourished, with Revolut achieving a remarkable valuation of $75 billion during a secondary share sale in September. Crypto neobanks are the latest innovation in this trend, aiming to utilize blockchain technology to deliver swift, low-cost international transactions, simplified crypto investments, and enticing interest rates on deposits. However, they face stiff competition from established challenger banks and crypto-native companies that are also introducing their banking solutions.
### Capitalizing on DeFi Yields
For many crypto neobanks, the goal is to offer customers returns that surpass those available in traditional banking. “Interest rates are incredibly low,” stated Vijit Katta, CEO and co-founder of Tria, a crypto neobank. “Unless one opts for high-risk financial products, it’s nearly impossible to achieve more than a 10% return.” Tria intends to tap into the yields provided by DeFi protocols, which can compete with the best rates from other neobanks. Notably, NuBank, the largest neobank, has attracted numerous customers in Colombia by offering a 13% effective annual interest rate on savings accounts. Tria aims to present even more lucrative yields, with Katta indicating that their strategies could yield returns between 15% and 25% month-over-month. Although these high returns may attract more customers, they come with heightened risks. Recently, the crypto market experienced a staggering $19 billion in leveraged losses, with the leading exchange, Binance, automatically closing numerous trades linked to delta neutral strategies, leading to unexpected losses for many traders. Additionally, vulnerabilities in the code of various DeFi protocols pose significant risks, as evidenced by a recent hack that resulted in a $128 million loss for users of the liquidity protocol Balancer.
### The Role of Regulatory Clarity
In the U.S., clearer regulations have been a crucial factor driving the optimism surrounding crypto neobanks. The recent signing of The Genius Act by President Donald Trump established clear guidelines for stablecoins, providing developers with much-needed confidence to launch their products. “Previously, the regulatory landscape was ambiguous, which led to higher fees and compliance costs for these new players,” explained Ying Zhong Ng, head of product at UR, a crypto neobank created by Mantle. “Now, I have clarity regarding my operational costs and the competitive landscape.” This newfound regulatory certainty has encouraged traditional payment providers to collaborate with crypto neobanks, expanding their potential customer base. Visa, for instance, has recently modified its internal guidelines to better align blockchain technology with existing payment systems. Katta emphasized the significance of these changes, stating, “What we are implementing now would have been impossible just two years ago, as Visa’s adjustments have revolutionized the operational capabilities of a self-custodial neobank.”
### Meeting Consumer Demand
Consumer interest is another driving force behind the rise of crypto neobanks. Ng noted that an increasing number of individuals are recognizing that cryptocurrencies serve purposes beyond mere speculation. “People are using stablecoins to send money to friends or family back home, or they are receiving payments in USDT or USDC as freelancers, which has become quite common,” he remarked. The environment in which these neobanks are launching is also significant, as users today are far more accustomed to financial applications than they were five years ago. Evin McMullen, co-founder and CEO of the Billions Network, which collaborates with Tria on private know-your-customer checks using zero-knowledge technology, highlighted this shift. “The barriers to adopting these new technologies are much lower for users now,” she stated. “They are more user-friendly and designed to align with existing experiences.”
