Neobanks versus traditional banks

You open an account on your phone in minutes, get a card delivered to your home and send Pix payments for free. The experience is similar in almost every financial app. But the company behind each one can be of very different types, with different rules and protections for your money.

This article compares so-called neobanks with traditional banks in Brazil. It explains which licenses exist in the country, what covers your balance in each case and what studies by central banks and the IMF say about the business models. To understand where these companies’ revenue comes from, see the companion article on how fintechs make money.

What a neobank is

The International Monetary Fund (IMF) defines neobanks, or digital banks, as branchless direct banks that acquire and serve customers mainly through digital channels, such as apps (Global Financial Stability Report, April 2022, chapter 3).

In common usage, however, “neobank” has become a marketing label. In Brazil, it does not correspond to any type of institution in regulation. What counts is the authorization the company received from the Banco Central do Brasil (BC, the country’s central bank). And the same group may include several companies, each with its own license.

The licenses behind the app

Bank

According to the BC, a bank is a financial institution specialized in intermediating money between savers and those who need loans, as well as safekeeping that money. It can take deposits and use those funds to lend. Some digital banks hold this license. In that case, the difference from a traditional bank lies in the service model, not in the type of institution.

Payment institution

A payment institution (IP, in the Portuguese acronym) provides payment services: it manages accounts, issues cards and onboards merchants. Law No. 12,865/2013 prohibits it from carrying out activities reserved for financial institutions. In practice, as the BC’s page on the subject sums up, a payment institution cannot grant loans and financing.

BCB Resolution No. 80/2021 divides payment institutions into four types:

• e-money issuer: manages a prepaid payment account, the kind you fund before spending;
• post-paid payment instrument issuer: manages a post-paid account, such as a credit card account;
• acquirer: enables merchants to accept cards (the card machine service);
• payment initiation service provider: triggers payments from the account you hold at another institution, without holding the money.

Many digital accounts are payment accounts, not deposit accounts. For you, day-to-day use looks the same. The difference shows up if something goes wrong with the institution, as the section on balance protection explains.

A recent change: since BCB Resolution No. 494, in force since September 5, 2025, every payment institution needs BC authorization before it starts operating. Previously, some could operate without authorization until they reached certain volumes. Those already operating without authorization had to apply for it between May 1 and May 31, 2026.

Credit fintechs: SCD and SEP

For lending, the BC authorizes two types of fintech, currently governed by CMN Resolution No. 5,050/2022 (CMN is Brazil’s National Monetary Council):

• Direct credit company (SCD): lends through an electronic platform using its own capital (or onlending from BNDES, Brazil’s national development bank). It is prohibited from raising funds from the public, except by issuing shares.
• Peer-to-peer lending company (SEP): connects those who want to lend with those who want to borrow, so-called peer-to-peer lending. According to the BC’s page on fintechs, each lender’s exposure to an SEP is limited to R$ 15,000.

Both are financial institutions and may also issue e-money, that is, offer a prepaid account.

The name now has rules too

Joint Resolution No. 17/2025, in force since December 1, 2025, prohibits an institution from using in its name, brand, internet domain or communications any term that suggests an activity for which it is not authorized. A company without a banking license, for example, cannot present itself as a “banco” or “bank”. The exception is a group that has an authorized bank among its companies, as long as it is clear which of them you are dealing with.

The rule also requires the institution to state clearly which activities it is authorized to carry out. Those that needed to adapt were given up to one year from the date it came into force. Until the end of 2026, therefore, you may still come across brands in transition.

Where the difference lies for your balance

What the FGC covers

The FGC (Fundo Garantidor de Créditos, Brazil’s deposit guarantee fund) protects up to R$ 250,000 per CPF or CNPJ (individual or company taxpayer ID), per member institution or conglomerate. If more than one institution fails within four years, the total paid to the same person is capped at R$ 1 million (FGC).

The list of covered products includes checking accounts, savings accounts, salary accounts, CDBs, RDBs (bank deposit certificates) and notes such as LCIs and LCAs (bank-issued real estate and agribusiness notes). Payment accounts are not on that list. So a balance in a bank account, up to the limit, is guaranteed by the FGC. A balance in a payment institution’s payment account is not.

What protects a payment account

Protection exists, but it is of a different kind. Under Law No. 12,865/2013, money held in a payment account is ring-fenced from the institution’s own assets. It is not liable for the institution’s debts, cannot be seized by its creditors and does not become part of the estate in the event of bankruptcy or liquidation.

In addition, BCB Resolution No. 80/2021 requires e-money issuers to keep funds equivalent to customer balances invested only in money deposited at the BC or in federal government bonds.

The practical difference: the FGC pays up to the limit according to its own procedures. With a payment account, repayment depends on the process run by the liquidator and on the segregated funds being complete. They are different mechanisms, and it is worth knowing which one applies to you.

And money “saved” in the app

Many apps offer interest-earning “pots” or “piggy banks”. Generally, that money leaves the account and goes into an investment, such as a CDB from a bank in the group or a partner. FGC coverage, where it exists, depends on the product and the issuing institution, not on the app’s brand. Check the statement or the contract for the product name and its issuer.

Business model: lower costs are not guaranteed profit

The classic argument in favor of neobanks is cost. Without branches, serving one more customer costs little. The BC calls this operating leverage: when fixed costs weigh heavily, each increase in revenue translates into a larger increase in profit.

In its Financial Stability Report of May 2026, the BC reported that the digital institutions segment had the largest rise in profitability in the financial system in the second half of 2025, driven precisely by this effect. In the same period, it was the segment with the largest increase in loan loss provisioning costs. According to the report, it operates credit lines whose risk materializes more when financial conditions tighten.

International experience calls for caution. The 2022 IMF study, covering 37 neobanks and 640 traditional banks in 18 economies, found:

• younger, lower-income customers and riskier lending, generally unsecured;
• proportionally lower loan loss provisions than traditional banks, despite the higher risk;
• higher operating costs than traditional banks, with marketing and compliance weighing heavily;
• weak profitability, with few neobanks profitable at that point;
• neobanks in emerging economies generally performing better than those in advanced economies.

The European Central Bank reached a similar conclusion for the euro area in a box published in May 2025. In the fourth quarter of 2024, the median return on equity of traditional banks (9.9%) was 2.9 percentage points higher than that of digital banks. Digital banks’ advertising and marketing expenses were three times higher. The ECB also noted that about 80% of digital banks’ funding (the source of their funds) came from retail deposits. With little diversification and dependence on online channels, this leaves them more exposed to bank runs.

The data cover different periods and markets and do not describe any specific company. But they indicate that “digital” is not a synonym for safer or less safe. It depends on the model, the license and risk management.

Side by side

Point	Bank (traditional or digital)	Payment institution	SCD
Can take deposits	Yes	No	No
Can grant credit	Yes	No	Yes, with its own capital
Balance covered by the FGC	Checking, savings and CDBs, up to the limit	Payment accounts are not on the list	Does not raise funds from the public
Protection of account balance	FGC	Ring-fenced assets and, for e-money issuers, funds held at the BC or in government bonds	Does not hold deposits; if it offers a prepaid account, check the account type
Can use “bank” in its name	Yes	Only if the group has an authorized bank	Only if the group has an authorized bank

The table simplifies. Large groups combine several licenses, and the product you signed up for may sit under any one of them.

How to check before concentrating money in an app

1. Find out the institution’s name. It should appear in the app, in the contract and on the website. Then look it up in the “Encontre uma instituição” (Find an institution) tool on the BC website.
2. Check the account type. Deposit accounts and payment accounts have different protections.
3. Confirm FGC coverage product by product. This applies both to the balance and to what earns interest in the “pot”.
4. Remember the limit. R$ 250,000 per CPF per conglomerate, not per app.
5. Be wary of anyone who calls themselves a bank without being one. Under the 2025 rule, the name has to reflect the authorization.

If you are interested in the infrastructure that allowed these companies to grow, see how Pix (Brazil’s instant payment system) and Open Finance work. And for financial services offered inside non-financial apps, read about embedded finance and BaaS.

Key takeaways

• “Neobank” describes a way of serving customers, not a type of license. What defines rights and protections is the BC authorization: bank, payment institution or SCD.
• The FGC covers deposits and some investments at member institutions. Payment accounts are not on that list and are protected by asset segregation, a different mechanism.
• Serving customers through a phone lowers the cost per customer, but IMF and ECB studies show this guarantees neither profit nor lower risk. Risky lending and customer acquisition spending weigh on results.