How Neobanks Actually Make Money: Interchange, Float and FX

Ask how a free bank makes money and you will usually get a list: interchange, interest, subscriptions, lending. That list is true and almost useless, because it never says how much, who pays it, or who decides. Here is the part most explainers skip. The biggest revenue line for a card-led neobank is not a business decision at all in Europe — it is a number written into law, published, and enforceable. And the fact that the same number is written very differently in the EU, the UK and the United States explains more about how neobanks behave in each market than any strategy deck ever will. What follows walks the mechanics, quotes the rules at source, shows the arithmetic on a worked example, and is straight about the figures nobody outside these companies can actually verify.

The six places the money comes from

Before the detail, the map. A modern digital bank earns from some combination of these:

• Interchange — a per-transaction fee the merchant's bank pays your card issuer every time you tap.
• Net interest — the gap between what your balance earns while it sits there and what you are paid for it.
• Foreign exchange — either a margin folded into the rate you get, or a disclosed fee on top of the mid-market rate.
• Subscriptions — paid account tiers.
• Lending — overdrafts, credit cards, personal loans, instalment credit, business credit.
• Business-to-business income — issuing cards and accounts for other companies, marketplace referrals, and interest earned on the wholesale side.

The order matters far less than the rules that govern each one. Take them in turn.

Interchange: the one revenue line a regulator writes for them

Mechanically, nothing about a card payment is free. You tap; the merchant pays their acquirer a merchant service charge; out of that charge the acquirer pays a fee to the bank that issued your card. That fee is interchange, and your neobank is either the issuer or has a partner bank that is. The EU defines it precisely, and the definition is worth reading because it closes the obvious loophole in advance: "interchange fee means a fee paid for each transaction directly or indirectly (i.e. through a third party) between the issuer and the acquirer involved in a card-based payment transaction. The net compensation or other agreed remuneration is considered to be part of the interchange fee."

That last sentence is the whole game, and we will come back to it.

The European number, quoted exactly

Regulation (EU) 2015/751 — the Interchange Fee Regulation — sets a hard ceiling. Article 3(1): "Payment service providers shall not offer or request a per transaction interchange fee of more than 0,2 % of the value of the transaction for any debit card transaction." Article 4: "Payment service providers shall not offer or request a per transaction interchange fee of more than 0,3 % of the value of the transaction for any credit card transaction." The comma is not a typo — EU legal texts use a comma as the decimal separator, so those are 0.2% and 0.3%.

Member States are allowed to go lower on domestic debit, and some structure it as a flat cap instead of a percentage. Article 3(2)(b) lets a Member State "allow payment service providers to apply a per transaction interchange fee of no more than EUR 0,05", optionally combined with a maximum rate of 0.2%, provided the scheme's total stays within 0.2% of annual domestic debit volume. So a European consumer debit tap can be worth a fraction of a cent to the issuer on a small basket.

And the anti-circumvention clause is what stops the cap being decorative. Article 5: "For the purposes of the application of the caps referred to in Articles 3 and 4, any agreed remuneration, including net compensation, with an equivalent object or effect of the interchange fee, received by an issuer from the payment card scheme, acquirer or any other intermediary in relation to payment transactions or related activities shall be treated as part of the interchange fee." In plain terms: a scheme cannot route the money around the cap by calling it a marketing incentive, a rebate or a volume bonus. It all counts.

What the European cap does not touch

This is where the model gets interesting, because the carve-outs are large and they shape entire product lines. Article 1(3) states that Chapter II — the chapter containing the caps — "does not apply to the following: (a) transactions with commercial cards; (b) cash withdrawals at automatic teller machines or at the counter of a payment service provider; and (c) transactions with payment cards issued by three party payment card schemes."

Read that again with a business hat on. A commercial card is not capped. A card issued to a company, on a company account, can carry an interchange rate several times what the same plastic would earn on a consumer account. That is not a scandal, it is the law as written — but it is a straightforward commercial reason why so many providers push hard into business accounts and expense cards, and it is worth knowing when you read our roundup of the best business neobanks. The third carve-out matters too: three-party schemes, where the same company issues the card and acquires the merchant, sit outside these caps entirely, which is why that model has always priced differently.

The United Kingdom: the same numbers, a narrower perimeter

The UK kept the regime after leaving the EU. The Payment Systems Regulator, the lead authority, states the caps are "0.2% of the value of a transaction for consumer debit cards (including prepaid cards), and 0.3% for consumer credit cards", and that "the onshored IFR is now retained UK law, which applies in the UK as amended by the Interchange Fee (Amendment) (EU Exit) Regulations 2019". The Treasury "designated us as the lead competent authority for the IFR in the UK in the Payment Card Interchange Fee Regulations 2015".

The catch is the perimeter. Those caps bite only where "the point of sale ('merchant'), acquirer and card issuer are all within the UK". The moment a transaction crosses that boundary, the ceiling is gone — and the schemes noticed. The PSR's own market review records what happened next: "Mastercard and Visa increased interchange fees for Card Not Present UK-EEA transactions using consumer debit and credit cards from 0.2% and 0.3% to 1.15% and 1.5% respectively."

That is roughly a fivefold rise on the same card, at the same online shop, decided entirely by where the shop's acquirer happens to sit. The PSR consulted on a price cap, then decided "not to proceed with our work on any interim cap" while litigation over its powers runs, and is now "focusing on how best to assess the level for a longer-term price cap on cross-border interchange fees". Its market review page carried that position when we checked it on 5 September 2026, with an October 2025 update stamp. Treat the outcome as open.

The United States: a cap with a ten-billion-dollar hole in it

America regulates debit interchange too, but only for large issuers. The Federal Reserve's Regulation II provides that "an issuer subject to the interchange fee standard (a covered issuer) may not receive, for any electronic debit transaction, an interchange fee that exceeds $0.21 plus 0.05 percent multiplied by the value of the transaction". A covered issuer that meets the fraud-prevention standards may add "an amount of no more than 1 cent per transaction" under 12 CFR 235.4(a).

Now the exemption, in the Fed's own words: "Section 235.5(a) exempts from the interchange fee standards issuers that hold the account being debited and have consolidated assets of less than $10 billion as of the end of the calendar year preceding the date of the electronic debit transaction."

Under ten billion dollars in assets, and there is no cap at all. And this is not a theoretical gap — the Federal Reserve publishes what each side actually earns. Across all networks in 2024, exempt issuers averaged $0.51 per transaction, or 1.21% of transaction value, while covered issuers averaged $0.23, or 0.47%. On dual-message (signature) transactions specifically, the split was $0.61 and 1.41% for exempt against $0.22 and 0.45% for covered.

Here is why that number is the single most important fact on this page. Most American neobanks are not chartered banks. They are technology companies that issue cards through a partner bank, and a great many of those partner banks sit comfortably under the ten-billion threshold. The card in your pocket is therefore exempt from a cap that applies to the card your neighbour got from a national bank — and the Fed's own data says the exempt side earns roughly twice as much per transaction and about two and a half times as much as a share of value. That single regulatory line is a load-bearing wall of the US neobank business model, and it does not exist in Europe.

The arithmetic, on a card you might actually carry

Numbers in the abstract do not land, so put a real basket through them. Take a person who spends the equivalent of 1,000 a month on their debit card, in whatever currency they live in, and look at what the issuing side collects before any costs.

• European consumer debit, at the 0.2% ceiling: 2.00 a month, or 24.00 a year.
• US dual-message, exempt issuer, at the published 2024 average of 1.41% of value: 14.10 a month, or 169.20 a year.
• US dual-message, covered issuer, at 0.45%: 4.50 a month, or 54.00 a year.
• A UK cardholder buying online from an EEA merchant, at the 1.15% the PSR records: 11.50 on that 1,000, against 2.00 if the same shop had a UK acquirer.

Two honest caveats, and they are big ones. First, the issuer does not keep that money. Scheme fees to Visa or Mastercard, processor costs, the partner bank's share, card manufacture and delivery, fraud losses and chargebacks all come out of it, and none of those splits are published for any provider we could verify. Read the figures above as the top of the funnel, never as profit. Second, the Federal Reserve numbers are averages across every exempt issuer in the country, not any particular neobank's rate, and the European figures are ceilings — the actual fee can be lower. Anyone quoting you a precise margin for a named company is either reading a filing you should ask to see, or guessing.

Net interest and the float: what the licence decides

The second big line is the money that sits in your account overnight. Whether the provider can earn on it, and whether you can, is decided by which licence it holds — and that is a genuinely different legal animal, not a branding difference.

A licensed bank takes deposits. It can lend them or invest them, it pays you whatever it chooses on the balance, and the difference is its net interest margin. An electronic money institution does not take deposits at all. It issues electronic money against funds it is required to protect: Directive 2009/110/EC requires Member States "to safeguard funds that have been received in exchange for electronic money that has been issued". Those safeguarded funds still have to sit somewhere, and wherever they sit, they earn whatever that placement earns.

Then comes the provision almost nobody knows about, and it answers the question people are really asking when they ask about the float. Article 12 of the same directive: "Member States shall prohibit the granting of interest or any other benefit related to the length of time during which an electronic money holder holds the electronic money."

So if your European or UK account is an e-money balance rather than a bank deposit, it is not that your provider chose not to pay you interest — it legally may not pay you interest for holding the balance. That is also why the same app will happily move you into a separate, differently-structured savings product to pay a rate. Which licence your provider holds is therefore the most consequential thing on this page for your own money, and it decides your protection as well as your interest; we walk through how to identify it in who actually holds your money.

We are deliberately not printing rates here. Deposit and savings rates move with central bank policy, differ by currency, provider and country, and any figure written into an article is wrong within months. Compare live rates yourself, starting with our high-yield savings guide, and check the rate on the provider's own page on the day you open the account.

Foreign exchange: a cost line for you, a revenue line for them

Currency conversion is where providers differ most in structure, and the structure is the only thing you need to identify. There are two honest models and one that pretends to be neither. A provider can quote you the mid-market rate and charge a visible fee on top — that is the model Wise built its business on, and the fee is the revenue. Or it can quote you a rate that is already worse than mid-market and charge nothing visible, in which case the spread is the revenue and it is invisible unless you compare the rate against a reference source at the same moment. Weekend surcharges, monthly allowances and plan-gated rates are variations on those two.

We are not going to restate the customer-side breakdown here, because it already has a home: the hidden costs of a multi-currency account takes the six charges apart one by one and gives a five-minute method for comparing providers on your own real corridor. If you convert regularly, read that one and then pick from our best multi-currency accounts.

Subscriptions, lending, and the business you never see

Paid tiers are the highest-margin line in the whole model, for a simple reason: the cost of serving a customer who has already been onboarded, verified and issued a card barely moves when you add travel insurance and a metal card to their plan. That is why the upgrade prompt is designed as carefully as it is.

We are not quoting any provider's plan price on this page. Subscription pricing is country-specific, changes without notice, and a figure written here would be wrong for most readers on most days. Open your provider's own pricing page, set it to your country of residence, and add up only the perks you will genuinely use.

Lending deserves more caution than it usually gets, because it is the line that changes what kind of company you are banking with. A payments business earns on volume and fails when volume stops. A lender earns on interest and fails when borrowers stop repaying, which happens in exactly the conditions where everything else is also going wrong. As overdrafts, cards and instalment credit grow into the main engine, the provider becomes a credit-risk business wearing a payments-company interface. That is not a reason to avoid it. It is a reason to read the credit terms with the same care you would give any lender, and to notice when the app's cheerful tone is attached to a real interest rate.

The quietest line is business-to-business. Providers issue cards and accounts for other companies under the banking-as-a-service model, take referral income from marketplace partners, and earn on wholesale balances. Starling's marketplace approach is a well-known example of earning from partner relationships rather than account fees, which we cover in our Starling review, and the wider mechanics are in our embedded finance guide.

And the AI layer that every app now ships? Look at where it sits in the model. Spending insights, categorisation and coaching are overwhelmingly retention and cross-sell tools rather than a revenue line of their own — they keep you in the app and route you toward the products that do earn. That is not sinister, but it does mean the incentive behind a nudge is worth understanding, which is the subject of what your AI bank knows about you and AI coaching versus regulated advice. Our ranking of the apps themselves is in best AI banking apps 2026, and the wider direction of travel in how AI is transforming banking.

Five checks you can run on your own provider

Each of these is answerable from documents your provider must publish. None requires trusting a review.

1. Which licence does it hold, and in which country? Bank, electronic money institution, payment institution, or a partner-bank arrangement where someone else is the actual bank. This one answer decides your interest, your protection and your recourse.
2. Is your card a consumer card or a commercial card? If it is commercial and you are in the EU or UK, the interchange caps above do not apply to it at all.
3. Where do your funds actually sit when you are not spending them? Safeguarded at a credit institution, held as a deposit on the provider's own balance sheet, or swept to a partner. The answer is in the terms.
4. Is the FX charge inside the rate or on top of it? Convert a real amount at a real moment and compare the rate you were given against a reference rate. The received amount is the only number that cannot hide anything.
5. What is your plan when the app is down? A provider whose revenue depends on you tapping has no branch to send you to. Our outage backup plan covers what a second account and a physical fallback should look like.

The counter-argument, taken seriously

The standard defence of this model is that neobanks profit when you use the service and legacy banks profit when you slip up. It contains real truth — the fees traditional banks charge genuinely are triggered by customer mistakes far more often. But the alignment argument is weaker than its fans admit, and it is worth stating the objections properly.

• Interchange is not money from nowhere. Merchants pay it, and merchants price it into what they charge everyone, including people paying cash. A model funded by interchange is funded, at one remove, by shoppers.
• If the revenue depends on card spending, then card spending is the product. Frictionless payment design, spending rewards and the cheerful confetti when you tap are not neutral — they are a system optimised to increase the behaviour that pays for it.
• The alignment claim collapses the moment lending becomes the growth engine. A lender does earn from a balance you failed to clear. That is the same incentive people criticise in legacy banks, arriving through a nicer interface.
• Savings rates and subscription upsells work quietly against you even in the best case, because the provider earns more when your money sits idle and when you buy a tier you underuse.

The honest conclusion is not that neobanks are good or bad, but that alignment is a per-line question rather than a slogan. On everyday card banking, incentives really are broadly pointed the same way as yours. On savings rates, plan upgrades and credit, they are not, and no amount of good design changes that.

What this page deliberately does not tell you

Because it would have had to be invented. We found no verifiable source, on the day of writing, for: the share of any named neobank's revenue that comes from any of these lines; any provider's current subscription price; any provider's current savings or FX rate; the revenue split between a neobank and its partner bank or card scheme; or whether any specific company is currently profitable. Company profitability, at least, is knowable — for firms that file public accounts, look them up at the relevant companies registry or in the company's own annual report or investor materials, rather than trusting a figure in an article. Everything above that carries a number carries a source with it, and everything that does not is described as structure on purpose.

Frequently asked questions

Who actually pays the interchange fee on my card?

The merchant does, indirectly. The merchant pays their acquiring bank a merchant service charge for accepting the card, and interchange is one component the acquirer passes to your card issuer. You are not billed for it, and the merchant is not allowed to see it as a separate line on your receipt — but it is priced into what merchants charge.

Does the 0.2% cap mean my bank charges the merchant 0.2%?

No, and this is the most common misreading. Interchange is only one part of the merchant service charge. The merchant also pays scheme fees and the acquirer's own margin, so the total cost of accepting a card is meaningfully higher than the interchange component alone.

Are neobanks profitable?

Some are, and profitability is a published fact rather than something to take on trust. Companies that file public accounts disclose it, so check the relevant companies registry or the firm's own annual report and investor materials rather than a figure quoted in an article. What matters for you as a customer is that a provider earning money is less likely to withdraw features or be forced into a distressed sale — it is a stability signal, never a substitute for deposit protection.

Do neobanks make money by selling my data?

For regulated providers, the revenue lines are the ones described above, not the sale of your transaction history. Data is used to power features, target offers and price risk, governed by data-protection law. The right question is not "is it sold" but "what is inferred, and what can I see or object to", which is exactly what what your AI bank knows about you is about.

Sources

• Regulation (EU) 2015/751 on interchange fees for card-based payment transactions, Articles 1(3), 2(10), 3, 4 and 5: eur-lex.europa.eu
• Directive 2009/110/EC on electronic money institutions, Articles 7(1) and 12: eur-lex.europa.eu
• UK Payment Systems Regulator, The IFR (caps, perimeter, competent authority): psr.org.uk
• UK Payment Systems Regulator, Market review into cross-border interchange fees: psr.org.uk
• Federal Reserve, Regulation II average debit card interchange fee by payment card network, 2024 data: federalreserve.gov
• Federal Reserve, Regulation II frequently asked questions (small issuer exemption): federalreserve.gov
• 12 CFR 235.3 and 235.4, debit card interchange fee standards and fraud-prevention adjustment: law.cornell.edu

All sources above were checked on 5 September 2026. This is general information, not financial advice. Interchange rules, licensing and deposit protection vary by country and change over time — confirm the position that applies to your own account and jurisdiction before relying on it.