The traditional banking business model revolves around providing services to retail and corporate clients. In recent years, the global fintech industry has been developing rapidly, leveraging technological innovations to capture market share from established players across various financial service sectors.
Amid the technological transformation of the banking industry, a significant number of providers have emerged at each stage of value creation, offering high-quality, personalized financial products and services at competitive prices. Traditional banks find it challenging to compete with such companies. Many banks have realized that collaboration with fintech firms is key to survival and success in this technological revolution, prompting them to seek new business development strategies and build innovative business models.
In the European Union, there has been a growing share of neobanks—digital-first financial institutions that operate through mobile applications and have abandoned traditional physical branches. These neobanks represent a symbiosis of banks and fintech companies, utilizing cutting-edge technologies to deliver innovative, customer-centric banking services. They actively compete with traditional banks by offering more convenient financial solutions through digital platforms.
This trend has gained significant momentum in recent years, becoming widespread across the EU banking sector. We spoke with Viktoria Soltesz, founder and CEO of PSP Angels Group. She is the author of a book about the payment and banking industry: “Moving Money – How Banks Think”:
CEO of PSP Angels
“Payment and banking today impact customer experience, risk management, technology, product development, data security, compliance, finance, and more. We argue that it should be considered a standalone function—an essential element of the business strategy, not just a part of finance.
We build strategies and scalable systems. Our unique framework successfully helped over 1000 companies globally, by supporting their overall business processes through a holistic approach to payment and banking setup.
Our unique approach “We are advisors, not resellers.” Payment brokers, experts and “strategists” and even gateways and ISOs usually work on commission by reselling different solutions, steering clients toward the highest commission rather than finding the best option, which is a conflict of interest.
Unlike many consultancies, we are not tied to commission agreements with any specific partners. This allows us to provide objective and impartial advice on the options, fees, and risks associated with various payment and banking channels.
Neo-Banking: A Real Alternative or Just Hype?
Neo-banking has grown significantly in the past decade, but calling it a true alternative to traditional banking is misleading. These companies offer modern interfaces, streamlined onboarding, and a digital-first experience, but their core operations still rely on traditional banking infrastructure.
Most neo-banks operate under various licences, such as Electronic Money Institution (EMI) license, Payment Institution (PI) license, Money Service Business (MSB) license, or any other non-banking financial license, depending on the country or region in which they operate. This means they usually do not hold deposits, lend money, or have the same regulatory backing as traditional banks. They operate differently from traditional banks but may still rely on the traditional financial products of the banks like safeguarding accounts.
Pooled Accounts as a Financial Product
One of the financial products offered by the neo-banking model is the use of pooled accounts. Financial institutions might aggregate customer funds under a single safeguarding or correspondent account to handle funds from various types of customers, each with different risk profiles. This setup can introduce additional risks—if one customer within the pool engages in fraud or has a compliance issue, it could impact all other customers within the same account. This is particularly relevant for international payment providers and high-risk industries, where compliance concerns could lead to account freezes or banking restrictions, ultimately affecting all users of the neo-bank.
Banking vs. Fintech: Regulatory and Structural Differences
Different countries regulate banks and financial institutions differently, leading to varied safeguarding measures.
Banks have a broader role in safeguarding the overall financial system, as they carry more responsibility beyond simply handling funds. Their regulatory obligations include financial stability, liquidity management, deposit protection, and systemic risk management, which extend beyond what fintech companies are required to maintain.
On the other hand, fintech companies might operate greatly differently under the various licensing structures, each with its own rules for handling customer funds.
While no single regulation is inherently better than another, businesses dealing with international payment flows must carefully design their banking and payment strategies to align with multiple regulatory frameworks.
The Blurring Lines Between Banks and Fintechs
Traditional banks are increasingly adopting fintech-like solutions, integrating mobile-first technology, digital automation, and app-based banking. They can no longer rely solely on paper-based processes and in-person branch visits—they must now provide fast, user-friendly digital services to stay competitive.
At the same time, many fintech companies are obtaining banking licenses to expand their product offerings. This allows them to provide services such as investments, mortgages, and lending, which were traditionally the domain of banks. To scale and compete, fintechs are moving closer to full banking capabilities, while banks are integrating fintech-style technology into their core operations.
Rather than fintechs replacing banks, or banks outpacing fintechs, the two sectors are converging, creating a financial landscape where technology and banking expertise must work together to serve modern customer needs”.