Updated
GL-T-05
Glossary · Banks and finance
Tier-1, challenger and neobank - three kinds of banking service and how they differ
01 / In 30 seconds
The short answer
- Tier-1
- A major, systemically important bank with a full range of services and strict compliance
- Challenger
- A new licensed bank with modern service and easier entry
- Neobank
- An app without its own banking licence — often an EMI
- How to choose
- By the task: holding capital, programme payments or everyday payments
- The main mistake
- Keeping everything in one place and finding out at the wrong moment
02 / In plain words
What Tier-1 / Challenger / Neobank means
Tier-1, challenger and neobank are informal names for three different types of banking service. A Tier-1 bank is a large, systemically important bank with a full range of services: deposits, loans, investments, international settlements. Such banks are reliable and accepted everywhere, but entry is stricter and compliance deeper.
A challenger is a relatively new bank with a genuine banking licence but a modern approach: remote opening, a convenient app, clear tariffs. A neobank is most often not a bank at all: behind an attractive app there is an EMI or payment institution licence, which means no deposits, no loans and no deposit guarantee.
For investment migration clients the difference emerges at a specific moment: when a programme contribution has to be paid, a settlement made with a notary or proof of funds provided. There the receiving party looks at the institution’s status, not the convenience of the app. That is why a sensible arrangement is a major bank for capital and programme payments plus a convenient service for everyday expenses.
A case from practice
A client planned to pay the contribution from a neobank — convenient and fast. The programme accepted payment only from the applicant’s bank account. Opening the bank account took several weeks, and the filing dates had to be moved. The second time we opened accounts in advance, in parallel with preparing the documents.
When the type of bank matters
- Paying the programme investment
- Proving you have the funds
- A settlement with a notary or developer
- Holding your main capital
- Everyday spending abroad
- A back-up payment channel
03 / What it covers
How the three types differ
Tier-1
- A full range of services
- High trust
- Strict entry and compliance
Challenger
- A genuine banking licence
- Remote opening
- Modern service
Neobank
- Often an EMI licence
- No deposits or loans
- No deposit guarantee
How to decide
- Look at the licence
- Check whether payments are accepted
- Separate the channels
04 / How it works
How to choose a bank for the task
Define what the account is for
Holding capital, programme payments or spending.
Check the institution’s licence
A bank or an EMI, which country and regulator.
Confirm whether the programme payment will be accepted
We ask the programme whether it accepts payment from this account.
Open a main and a back-up account
Accounts at two different institutions.
Separate the channels by purpose
Capital and large payments in a bank, spending in a convenient service.
05 / Key facts
What you need to know
01Tier-1
A large systemic bank
A full range of services and strict compliance. Payments from such a bank are accepted everywhere.
02Challenger
A new licensed bank
Remote onboarding, a convenient app, clear fees - and a real banking licence.
03Neobank
Often not a bank
Behind the app there is often an EMI licence: no deposits, no loans, no deposit guarantee.
04The setup
Two channels
A large bank for capital and programme payments, a convenient service for everyday spending.
Common mistakes
Choosing a bank by its app
Start from the account's purpose and the institution's status.
Assuming any service with an IBAN is a bank
Check the licence in the regulator's register.
Opening an account just before a payment
Open accounts in advance, alongside the documents.
Keeping all capital in one place
Have a main and a backup account at different institutions.
06 / Expert advice
How to prepare in advance
Accounts are opened in advance, not a week before the payment: compliance at a serious bank takes time. It is sensible to have at least two channels — a main bank for capital and programme payments and a convenient service for everyday expenses. Before paying, always confirm with the receiving party what type of account it accepts money from.
What we do for you. We choose a bank for your programme in advance and check whether the receiving party will accept payment from your account. We put account opening into the schedule together with gathering documents, so that the banking question does not delay filing.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
An informal term for a large, systemically important bank with a full range of services and a high level of trust. Entry is usually stricter.
Often not. Many apps operate under an EMI or payment institution licence: there are no deposits, no loans and no deposit guarantee.
A challenger has a genuine banking licence with a modern service. A neobank often operates under a non-bank licence.
As a rule, at a bank: state programmes, notaries and developers usually expect payment from the applicant’s own bank account.
At least two at different institutions. A single account is a single point of failure: a block or a check stops all your payments at once.
The larger the bank and the higher its reputational risks, the stricter the compliance. That is the flip side of reliability, and you prepare for it with documents.
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