Neobanks like Chime or Current are fintech companies that often partner with a banks to offer FDIC-insured accounts. But it's not quite the same.
When a bank fails, the Federal Deposit Insurance Corp. tends to act quickly to protect customers’ money and arrange for a healthy bank to buy the failed one. This process happened most recently on May 1 when First Republic Bank failed. But what happens if a neobank fails?When a bank fails, the Federal Deposit Insurance Corp. tends to act quickly to protect customers’ money and arrange for a healthy bank to buy the failed one.
Most neobanks, such as Chime, Current and Greenwood, have a partnership with one or more banks that enable their customers’ money to be held in FDIC-insured accounts at these banks. These nonbank neobanks manage the consumer-facing experience, including the banking app, website and customer service, while a bank handles the money in accounts behind the scenes.
Let’s say a nonbank neobank fails. “If your money is at [a] bank, you’ll probably eventually get it back, but we don’t know what problems are going to occur” at the nonbank, says Lauren Saunders, associate director at the National Consumer Law Center. She says that potential issues from a nonbank’s failure could include a lack of access to your money, frozen accounts, transactions not going through, the nonbank’s app not working, or the account balance displaying a wrong number.
The LGBTQ-focused neobank Daylight announced in May that it was closing operations on June 30, according to the website. The neobank, which partnered with the bank Pathward, said that banking customers’ money is safe and the decision to close was “unrelated to the wider banking crises happening globally.” In addition, the neobank said customers were given instructions for transferring money before the closure date.
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