How Do Neobanks Actually Make Money?

Neobanks make money in five ways: card interchange (a small fee the merchant pays every time you use the card), interest margin on the balances customers leave with them, lending, paid subscription tiers, and commissions on partner products. Which of the five dominates depends mostly on geography. In the United States a free account can run largely on interchange; in the EU and the UK the law caps interchange so low that it cannot, so European challengers lean on balances, subscriptions and lending instead. The published accounts of Chime and Monzo, set out below, show the difference in actual numbers.

The short version for you as a customer: somebody else is paying for the free account — usually merchants, sometimes the central bank through the rate on deposits, and increasingly you, in ways that are not itemised as a fee.

The five revenue lines at a glance

Interchange — the merchant pays for your free account

Every card payment carries an interchange fee, paid by the merchant's side of the transaction and received by the bank that issued your card. A small amount multiplied by every coffee, food shop and subscription across millions of customers is the foundation of the free-account model.

This is why every free banking app pushes so hard to become your primary spending card and to receive your salary. A customer who parks £50 and never uses the card is a pure cost.

Why the same swipe earns different amounts in the US and Europe

The rules are set in law, and they are very different on each side of the Atlantic.

In the EU, Regulation (EU) 2015/751 says payment service providers shall not request an interchange fee of more than 0.2% of the transaction value on debit cards (Article 3) and 0.3% on consumer credit cards (Article 4), per the regulation as adopted. The UK kept the same 0.2% and 0.3% ceilings after Brexit for UK card transactions, per the UK version of Article 3.

In the United States, the Federal Reserve's Regulation II caps debit interchange for large issuers at 21 cents plus 5 basis points of the transaction value (12 CFR 235.3), plus a fraud-prevention adjustment of no more than 1 cent (12 CFR 235.4). The cap does not apply to an issuer that, together with its affiliates, has assets under $10 billion (12 CFR 235.5).

That exemption matters in practice. The Federal Reserve's own figures for 2024 put the average debit interchange fee at $0.23 per transaction (0.47% of value) for covered issuers and $0.51 per transaction (1.21% of value) for exempt issuers, per its average interchange fee data, last updated 19 December 2025.

Worked example: one $40 card payment

• Large US bank (capped): $0.21 + (0.0005 × $40 = $0.02) + $0.01 fraud adjustment = at most $0.24.

• Small US partner bank (exempt), at the 2024 average rate: 0.0121 × $40 = about $0.48 — roughly double. The real figure varies by network and merchant; the average is used here only to show the order of magnitude.

• EU or UK debit card: 0.002 × €40 = at most €0.08.

Scale that to a customer who spends 1,500 a month on the card in their home currency, or 18,000 a year. At the exempt-issuer average of 1.21%, that is $217.80 a year of interchange. At the 0.2% European cap, it is at most €36. Same spending, about six times as much revenue, before any exchange-rate difference.

That gap is the economic engine of US neobanking. It explains why so many American fintechs partner with small, unfamiliar banks rather than large ones, why direct deposit is the metric those companies optimise for, and why the partner-bank structure — with the consequences set out in embedded finance — is so common in the US and comparatively rare in Europe.

What the published accounts show: Chime and Monzo

Two filings make the contrast concrete.

Chime (US). In its annual report on Form 10-K for 2025, Chime states that interchange-based fees from debit card transactions represented 49% of revenue in 2025 (55% in 2024), and interchange from credit card transactions a further 20% (21% in 2024). Total revenue was about $2.19 billion, per the 10-K filed with the SEC. Roughly seven dollars in ten came from card swipes. Our Chime review covers what that model means for the account itself.

Monzo (UK). Monzo's year in review for the year to 31 March 2026 reports revenue of £1.7 billion, card spending of £73.0 billion, customer deposits of £25.7 billion, average revenue per active customer of £183, and more than 1.6 million customers on paid subscriptions.

A rough sense-check shows why Monzo cannot be an interchange business. If every pound of that £73.0 billion had earned the full 0.2% consumer debit cap, interchange would be 0.002 × £73.0bn = £146 million — under a tenth of £1.7 billion in revenue. The real figure differs (business cards and some cross-border payments are priced differently), so treat this as an indication rather than a measurement. The point stands: the money has to come from somewhere else, and with £25.7 billion of deposits on the balance sheet, interest margin is the obvious candidate.

Net interest income — the line that quietly changed everything

A bank holding your balance earns a return on it and pays you less than it earns. That spread is the net interest margin, and when policy rates rose from near zero it turned from a rounding error into the largest profit line at several of these companies.

Only a licensed bank can run this line on its own balance sheet. An e-money institution has to safeguard customer money rather than lend it out, which is one reason so many UK and European fintechs applied for full banking licences — and why the licence question matters to you, as the neobank safety guide explains.

It is also the answer to "why does my current account pay no interest?" The balance sitting there is the product.

Lending — where the real money is, and the real risk

Personal loans, credit cards, overdrafts and buy-now-pay-later generate the highest margins of anything on this list. Lending is also the only line that can lose money in size: interchange revenue cannot go negative, and a loan book can. This is why a young neobank's growth in lending is watched more closely by investors than its growth in customers.

Subscriptions — small share of users, large share of profit

Paid tiers — metal cards, travel insurance, higher allowances, lounge access — cost little more to serve than free ones, so most of the fee is margin. N26's plans, for instance, run from a free Standard account to Metal at €16.90 a month. Monzo's 1.6 million subscribers out of 15.2 million customers show the usual shape: a minority pays, and almost all of what it pays drops through to profit.

Partner commissions and marketplaces

Insurance, investments, third-party savings, mortgages and currency services referred to partners all pay a commission. Marketplace models turn the app into a distribution channel for other firms' products. For you this is neutral as long as the partner product would be worth buying on its own.

Are neobanks profitable?

Several of the largest now are; Monzo reported adjusted profit before tax of £172.6 million for the year to March 2026. The sector's path is typically long, because acquiring customers costs money immediately while lending and deposit revenue arrive later.

Two things are worth separating when you read a profitability headline:

• Profitable overall is not profitable per customer. A company can be in profit because a minority of engaged customers subsidise a long tail of dormant ones.

• Rate-driven profit is not the same as durable profit. A great deal of recent profitability across the sector came from higher policy rates lifting net interest income. That is real money, and it is not evidence that the model works at low rates.

What this means for you

• The free account is paid for by merchants, so expect pressure to make it your main card. If it suits you, that trade is fine.

• Your balance is revenue. If you keep meaningful savings in a current account, compare what you are paid with what is available elsewhere — see best high-yield savings accounts.

• Read the premium tier as a product, not a loyalty reward. Price the perks you would actually use against twelve months of the fee.

• Free FX usually has an allowance. The allowance is where the model pays for itself; the cost begins where it ends. Wise vs Revolut for transfers covers how that works in practice.

• Watch the licence. A US provider earning exempt-issuer interchange is doing so through a partner bank, which changes who holds your deposit — see top neobanks in the US for who actually holds it at each.

Frequently asked questions

How do free neobanks make money if they charge no monthly fee?

Mainly from interchange — the fee the merchant's side pays each time you use the card — and from the margin between what they earn on your balance and what they pay you. Lending, paid tiers and partner commissions add the rest. In the US, Chime reported that card interchange made up about 69% of its 2025 revenue.

Why do European and American neobanks operate differently?

Because interchange is capped at 0.2% of the payment for EU and UK debit cards, while US issuers with under $10 billion in assets are exempt from the Federal Reserve's debit cap. On the Fed's 2024 averages, an exempt issuer earned $0.51 per debit payment against $0.23 for a capped one, so a US free account can live on swipes and a European one cannot.

Do neobanks make money from my account balance?

Yes, if they hold a banking licence. The bank earns a return on deposits and pays customers less than it earns; that spread is net interest income. It is the main reason a current account pays little or nothing, and the reason to move savings you do not need day to day into an account that pays a proper rate.

Is lending risky for a neobank?

It is the one revenue line that can lose money in size. Interchange and subscription income can shrink but never go negative, whereas loans that are not repaid are a direct loss — which is why investors watch a young bank's loan book more closely than its customer count.

The bottom line

The model is genuinely better aligned than fee-heavy traditional banking: a neobank mostly earns when you use it, not when you slip up. That is a real improvement and worth saying plainly.

But "free" is a pricing decision, not a gift. The revenue comes from merchant fees on your spending, the spread on your balance, and interest on what you borrow. Knowing which of those you personally supply tells you exactly how good a deal you are getting. If you want to see which providers this applies to, the best neobanks ranked is the place to start.

This is general information, not financial advice.

Related reading: Top Neobanks in the US 2026: Who Actually Holds Your Deposit