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When it comes to your money, do you prefer your "Banking, evolved"? Or are you more in the camp of "Banking for humans"? Would it be fair to say, "Financial power belongs in the hands of the many, not the few"? Differentiating between taglines (not to mention fees, expenses, hidden costs, and convenience) are just a few of the many challenges facing consumers thinking about ditching their bank for a so-called neobank or challenger bank.

Many of the most popular fintech banking apps have marketed their services as democratizing finance, with stress-free signups, transparent pricing, and the ability to easily access money when needed. And Americans are slowly starting to buy in. About 30% of Americans use some type of online-only banking, according to Plaid’s 2021 Fintech Report. About 67% of U.S. customers use digital-first and traditional banks’ online or mobile apps.

“Generally speaking, [fintechs] are more transparent to consumers about pricing features and functionality,” says David Albertazzi, director of retail banking and payments practice at Aite-Novarica, an advisory firm focused on the technology, financial services, and insurance industries. In a comprehensive review of 50 fintechs, we found many had fees and pricing clearly listed on their websites, albeit often in hard-to-locate portions of its FAQ and legal disclosure sections. But other hidden fees were tucked away where only the savviest consumers could find them. Here are the factors consumers may want to consider before ditching their traditional bank.

Fees

Transparency is great—but it doesn’t always translate to fee-free. Approximately half of fintechs Fortune reviewed charge typical bank fees ranging from monthly account memberships or subscriptions, out-of-network ATM charges, and expenses related to cash deposits.

Digit and Tend, for example, both charge about $10 a month for their entry-level bank accounts, while Revolut charges $16.99 for its elite subscription plan. (Revolut, however, does have a free option and just enhanced its fee-free offerings.) Meanwhile Dave charges $1 per month for membership, an out-of-network ATM fee, as well as a fee equal to 1% of the transferred amount for any Apple Pay, Google Pay, and debit card transfers.

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All in all, the fee game at many neobanks and fintechs is not exactly a massive evolution from traditional banks. The average monthly fee for interest-bearing checking accounts at traditional banks is $16.35, according to Bankrate. Noninterest accounts have an average monthly fee of $5.08.

Neobank customers also have the opportunity to rack up outside charges. The banking app may not charge an ATM fee, but the terminal operator may. Same for consumers who may need to deposit cash into their fintech bank account, particularly if they work in cash-heavy industries like hospitality and restaurants. Current, for example, makes the process fairly easy by allowing customers to add cash to their account at over 60,000 stores nationwide, but does charge $3.50 per transaction.

With the proliferation of different mobile banking apps, however, many do offer services beyond the typical brick-and-mortar banks, including early access to direct deposits, generous cash-back rewards, and even services related directly to the communities they aim to serve.

Majority, for instance, charges a $5 monthly subscription fee. Launched in 2019, Majority bills itself as an “all-in-one mobile banking app for migrants.” Customers can send phone credits, fee-free, to friends and family members in more than 35 countries including Cuba, Mexico, Nigeria, and Colombia.

“Our purpose is just to fix the problem you have when you have this cross-border life,” CEO Magnus Larsson tells Fortune. “If you're a migrant in the U.S. today, you were actually paying the most for all the services. So instead of spending $10 on calling and $10 on sending money and $10 on banking, our users are saving a lot of money by using our service.” So if you use all of Majority's extra services, you could save—but if not, there may be cheaper alternatives.

In addition to offering more services, only a small number of fintechs offering mobile banking services disclosed overdraft fees, according to Fortune’s analysis. And those can add up for customers. Last year, overdraft fees hit an average of $33.58 per incident, according to Bankrate. And about 33% of households had overdraft fees, according to Doxo.

The evolving neobank space

Neobanks haven't been around long, with most having opened only in the past 10 years. So perhaps it's not surprising that only about a third of Americans say they trust fintech companies—far less than the proportion that trust banks and credit unions, according to a Morning Consult survey of 4,400 consumers. About 43% say they have no opinion.

While fintech banking is still relatively new, the space has already had its fair share of controversies, including Chime’s multiple outages that barred customers from accessing their accounts, small businesses complaining last year that Square was holding back up to 30% of their payments, and Germany's Wirecard collapsing in fraud and scandal. A number of fintech apps also have suffered security issues. Most recently the fintech Dave was hacked in July 2020 and the personal information of at least 7.5 million customers was exposed.

Those signing onto these services are not exactly underserved either. Although banking apps and fintechs have touted their potential to reduce the number of unbanked Americans (about 7.1 million U.S. households in 2019), Morning Consult found that those who typically fall into this category—low-income, rural, and Black consumers—are among those least likely to be interested in using these products.

“Many Americans don’t trust the traditional banking system because big banks and corporations have too much power in our economy,” Sen. Sherrod Brown (D-Ohio) tells Fortune. “They’ve been burned by fees and second chance accounts, so they are forced to turn to so-called fintechs that claim to make banking easier and cheaper. But these products have few protections or oversight, and as these technologies have developed, most of them seem to mirror—rather than challenge—the Wall Street model.”

When fintechs started offering banking services, they typically partnered with a bank. Little-known banks like Coastal Community Bank, MetaBank, Nbkc bank, and Sutton Bank handled the regulatory oversight and provided FDIC insurance on deposits, while fintechs provided slick interfaces and consumer data. So in these partnerships, it's usually the banking partner that's being more heavily scrutinized, and the regulations are not always applied the same way they would be for a traditional bank account.

If a consumer, for example, uses Venmo or PayPal to pay a friend from their account balance, the transaction may not be covered by safeguards of the Electronic Funds Transfer Act, according to the St. Louis Federal Reserve's March analysis.

“We’ve seen how companies, like Square and Chime, have a bad track record when it comes to protecting consumers. We need to hold these companies accountable and close the loopholes that allow so-called fintech firms to play by a different set of rules than banks and credit unions, leading to unfair competition and putting consumers’ money at risk.”

Brown, along with other lawmakers, has called for more regulation and oversight of the industry, as well as supported No Fee Account legislation that would require banks to offer free digital bank accounts. But so far, there has been little rulemaking on the federal level.

“Governments are always very slow to adapt to changing technology. Neobanks are a great example of that. I don't think the government and the regulators really know what to do with them just yet,” says David Mattei, a strategic adviser at Aite-Novarica.

An explosion of offerings

Whether or not regulators and lawmakers put additional guide rails on the industry, it’s already evolving and growing. Bloomberg reports there are over 300 fintechs operating globally. Today, most not only offer debit spending cards, checking, and savings accounts—but also investing, retirement savings, and even crypto exposure.

That's pulling in big money. Global funding in fintech from venture capitalist firms reached a record $52.3 billion during the first half of 2021, according to KPMG. And that's more than double the level raised in the second half of 2020.

“Neobanks are just like any kind of tech startup; it's grow, grow, grow, grow,” Mattei tells Fortune. They're scaling up and trying desperately looking to carve out a significant market share. And neobanks are still measured very differently from a traditional banks, which does give them some leeway in the near term. But long-term profitability will need to be a larger part of the equation.

"Profitability is definitely part of the scrutiny here and from that standpoint, they are running out of time to become profitable," Albertazzi says. And the path toward operating in the black may throw into question whether neobanks will be able to continue to offer their lower-cost services.

But some neobanks are starting to look at what traditional banks have been doing right, and in some cases that may be moving away from bank partnerships to becoming (or buying) full-fledged banks in order to trim costs and expand opportunities to pursue more avenues for revenue. Albertazzi tells Fortune that the bank partnership model may not work long term, both in terms of regulation and profitability. “In my opinion those [neobanks] that will survive, will need or already have acquired a banking license. I think long term they cannot rely on a third party to do that,” he says.

Some neobanks are already looking to the future. Varo Bank, for instance, was the first consumer fintech to be granted a national bank charter. “We chose the bank charter route because it allows us to offer a very fulsome set of products and it also provides a more diverse path to monetization. It eliminates the costs of the intermediary,” Colin Walsh, CEO and founder at Varo Bank, tells Fortune.

Being dependent on an intermediary bank meant Varo had a fairly narrow set of permissions, including limitations on consumer data, credit underwriting, and even direct access to payment systems, Walsh says. “Now that we're operating as a bank, we don't pay a toll every time somebody transacts on a card, we don't pay when they move money through ACH rails or when they deposit a check—so we had to pay for all that.

“The economics and what it does from a margin perspective and your ability to actually create more value for your customer and also have better unit economics is very meaningful,” Walsh says. It’s worth noting, perhaps, that Varo raised $510 million in its latest funding round in September and is now looking at a $2.5 billion valuation.

Since Varo received its bank charter, Square received approval for an industrial banking charter while SoFi snagged preliminary approval. Revolut is taking the charter path as well. “Beyond deposits, what it does is it allows us to operate independently, so we're not dependent on a sponsor bank,” says Ronald Oliveira, Revolut’s CEO. Revolut has filed for a bank charter in the U.S., as well as in the U.K., Australia, and Singapore. It already has a bank license in Eastern Europe.

Others are looking to acquisitions to pave the way. M1 Finance's CEO recently bought the First National Bank of Buhl in a bid to seemingly expand M1's banking capabilities, including a push into offering personal loans, auto loans, and mortgages. CEO Brian Barnes told Fortune’s Declan Harty M1 sees itself becoming regulated as a bank in the future.

But whether or not these neobanks can remain independent while they scale up and potentially seek out charters remains to be seen. Albertazzi believes that at least some neobanks will find themselves absorbed by some of the larger U.S. financial institutions that have been in business for a long time. And that’s already happened in some cases, such as BBVA’s acquisition of Simple Bank.

“The big question that we ask ourselves is whether or not over time those neobanks or challenger banks can independently scale. Can they build a profitable—and profitable is the key word here—banking business? Because right now adoption is really high; that doesn't mean they're profitable,” Albertazzi says.