A neobroker is an investment service provider which offers its services primarily online (via a mobile app, for example). Typically, neobrokers also maximize the use of digital technologies to make processes more efficient.
Neobrokers do not necessarily have to be licensed stock brokers or banks. Instead, they may partner with one or more banks or stock brokers which execute trades on their behalf. In this case, the neobroker provides the digital interface, and possibly the customer support and administrative work.
The main difference between neobrokers and conventional stock brokers is that neobrokers introduce new business or technological models.
For example, many “free” online trading platforms fall into the neobroker category. Instead of charging fees to execute stock orders for customers, they offer trading without brokerage fees while using other business models to earn money. For example, they may be paid sales commissions by market makers which act as counterparties for customer orders. They may also earn money by charging interest on leverage for margin-based trading.
Alternatively, neobrokers may stand out from conventional brokers by using revolutionary technology (to process orders, for example), or by offering an exceptionally good digital user experience.
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