Open the legal page of most app-based money providers and you will find a sentence that never appears in the advertising: the provider is an electronic money institution, your balance is safeguarded rather than protected by a deposit guarantee scheme, and it does not earn interest. That single sentence is the whole difference between a neobank and a bank, and it matters more to a trading firm moving six figures a week than to someone splitting a restaurant bill.
Two licences, two obligations
A credit institution, which is what most people mean by a bank, is allowed to take deposits from the public and lend that money out. Your balance is a claim on the bank, the bank runs a capital buffer against it, and a statutory scheme stands behind eligible depositors up to a national limit if the bank fails.
An electronic money institution cannot lend your money. It issues e-money against funds you send, and it must safeguard those funds by holding them in segregated accounts at credit institutions or in permitted low-risk assets. The EMI licence was designed exactly this way: less risky activity, lighter capital, tighter rules on where the float sits. It is a real authorisation with a real supervisor, and it is not a banking licence.
The practical consequence shows up in insolvency. Safeguarded funds are meant to sit outside the estate and return to customers, but the return runs through an administrator, takes time, and can carry the cost of the administration. A deposit guarantee scheme pays out on a defined timetable up to a defined ceiling. If your working capital funds payouts every Friday, the timetable matters as much as the ceiling.
The market is genuinely mixed
Grouping everything under "neobank" hides the fact that some of these providers do hold banking licences. Revolut holds a banking licence in Lithuania that covers its EEA operations, while its UK entity has been working through the authorisation process on the FCA's mobilisation route. Wise, by contrast, has been consistent in describing itself as a money services provider rather than a bank, and explains its safeguarding arrangements plainly on its own site. N26 has held a German banking licence for years. Same category in a listicle, different legal footing entirely.
So the question is never "is this a neobank". It is "which entity holds my money, under which licence, in which country". Both answers are published. Comparing the two most common choices in detail is what our Wise vs Revolut piece is for.
Check the entity name on your incoming payment details, not the logo on the app. Firms have discovered mid-audit that their "European account" was issued by a partner institution in a country they had never mentioned to their bank or their regulator.
Where neobanks win for a trading firm
Speed of onboarding is the obvious one. A traditional bank can take months to open a corporate account for a licensed broker, and can decline at the end of it without much explanation. An e-money provider can be live in days.
Multi-currency handling is the other. Holding balances in a dozen currencies with mid-market conversion and a visible percentage fee is straightforward at a fintech and awkward at most high-street banks, where the spread is buried in the rate. For a firm collecting deposits in euros, paying suppliers in dollars and running payroll in a third currency, that transparency is worth real money. We break the mechanics down in currency conversion fees.
Local receiving details are the third. Getting a domestic account number in several markets from one provider removes the friction of clients paying by international wire, and reduces the number of transfers that arrive short after correspondent deductions.
Where they stop being enough
Client money is the hard boundary. A regulated broker holding segregated client funds is usually required to place them with credit institutions that meet defined criteria, and to record why each institution was selected and reviewed. An e-money account rarely satisfies that test, whatever its balance sheet looks like, because it is not a credit institution. Operating cash is a separate pot and a separate decision, which is the split we describe in banking for trading firms.
Acceptance is the second boundary. Some counterparties still refuse payments from or to non-bank IBANs, or from IBANs issued in a country that does not match the customer's residence. That practice is prohibited in the EU under the SEPA rules and it happens anyway, which is why IBAN discrimination remains a live operational problem rather than a settled one.
Concentration is the third. A single provider that freezes an account while it reviews a spike in volume can stop a firm's payouts for a week. Firms that run two providers plus a bank find out about a freeze while they still have a way to pay people.
Choosing without the marketing
Start from the money's job. Client funds under a regulatory rulebook go to a credit institution, full stop. Payout float, supplier payments and multi-currency collection are exactly what fintech accounts are good at, and using one there is a sound decision rather than a compromise.
Then read three things before you sign: the entity and licence that appears on your account details, the safeguarding or protection statement, and the section of the terms that describes when the provider may suspend or close an account. The last one is the least read and the most expensive to discover late. When our clients wire the payment side of their firm into the Broker CRM, the first question we ask is which entity is on the other end of each rail, because reconciliation and audit both depend on that answer.
"Ask one question about any account: if this provider went dark tomorrow, who is holding my money and under what law. If nobody at the firm can answer, the account is not ready for client volume."
— Roman Onta, Executive Director, SINGUARD
Key Takeaways
- Safeguarded e-money and protected bank deposits behave very differently when a provider fails.
- Some app providers do hold banking licences, so check the entity and country on your account details.
- Segregated client money almost always belongs at a credit institution; operating float is where fintech accounts earn their place.
- Run more than one rail, because a single account review can stop every payout you owe that week.
Frequently Asked Questions
Is a neobank account the same as a bank account?
Only when the provider holds a banking licence. Many app-based providers operate as electronic money institutions, which means your balance is safeguarded in accounts at partner banks rather than covered by a deposit guarantee scheme. Read the legal disclosure on the provider's own site, because the marketing rarely makes the distinction.
What is the difference between safeguarding and deposit protection?
Safeguarding means an e-money institution must keep customer funds separate from its own money, usually in segregated accounts at credit institutions or in low-risk assets. Deposit protection is a statutory guarantee scheme that pays eligible depositors up to a set limit if a licensed bank fails. Safeguarding relies on the segregation holding up in an insolvency, which is a slower and less certain process.
Can a trading firm hold client money at a neobank?
That depends on the firm's own rulebook. Regulated brokers are generally required to place client money with credit institutions that meet defined criteria and to document the selection, which usually rules out an e-money account for the segregated pot. Operating cash and payouts are a different question and are often handled through fintech providers.