Hacker News Reader

Comment by jonhershman | Hacker News Reader

There's a golden opportunity for tech led banking. 1) less barriers to entry, 2) more cost effective, 3) only need small customer bases. While neobanks and traditional banks offer most of the same products, their business models are different. I write about it more here: https://easilyamused.beehiiv.com/p/neobanks-vs-traditional-b...

View on HN

> Since the Neobank doesn’t have its own FDIC insurance and bank charter, the neobank customer’s deposits actually sit on the sponsor bank’s balance sheet

Are you saying that "neobanks" do not record the deposits as a liability? Or that they do not record the cash as assets? I don't understand what you are trying to say.

Are there any public "neobanks" you can point to so that we can see the financials as you describe them?

Getting a bank charter and FDIC insurance is a huge undertaking, so neobanks are usually not actually banks. They are technology companies that have partnered with banks or are customers of banking-as-a-service providers (Hydrogen, Stripe Treasury, and similar).

The banking partners have their own bank charter and FDIC insurance, but the technology company itself does not. If you go to most neobank websites, you can scroll to the bottom and see a disclosure along the lines of "Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC".

That doesn't have anything to do with financial statements. If you're Joe's Lawn Service and someone hands you money, it goes on your balance sheet. That's how accounting works, every penny gets (you know) accounted for. Otherwise how do these "neobanks" know who they owe?

None of the deposits are on the technology company's balance sheet because the neobank doesn't actually handle any of the money. They are essentially UIs on top of APIs exposed by the bank.

If you make a deposit into a neobank, you'll have a routing and account number, but the routing number belongs to the partner bank servicing that account. If you deposit cash or a check or whatever, it goes _directly_ to the partner bank.

I think they are describing what is termed "brokered deposits" -- like your Starbucks gift card account isn't managed by Starbucks, but rather a (usually large) bank on the backend which treats brokered deposits differently than unbrokered (standard) deposits.

Hmmm, possibly. However you are describing an operational reality and the author was using financial reporting terms. And specifically if something like "people gave a bunch of money to what they thought was us" isn't on the balance sheet, it's a big red fraud flag

Reply on news.ycombinator.com