How to Build a Neobank: Tips, Features and Development Process

01 Dec 2022

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In today's world, absolutely all processes are actively digitizing, and banking operations are no exception. The trend towards fully digital banks, i.e., neobanks, is actively developing. Nonetheless, they leave traditional banks far behind.

Neobank development is a trend in the banking sector and FinTech. Start-ups and financial institutions today are interested in creating web and mobile solutions to get ahead of their competitors. If you are curious about how to start a neobank, this article helps you get acquainted with all the essential points to consider.

To give you a hint, here is a brief overview of how to create a neobank from scratch:

  • Step 1. Find a reliable technical partner
  • Step 2. Determine the key features of neobank
  • Step 3. Make a neobank design
  • Step 4. Develop a neobank
  • Step 5. Test the application
  • Step 6. Launch neobank
  • Step 7. Maintain and update the app

How the Neobank Trend Is Developing: A Statistical Review

But before we dive deeper into this topic, let's examine some statistics about the market, so you can better understand how the demand for online banking has been transforming and what changes to expect in the future. According to a breakdown by Statista, the neobanking transaction value, which is US$3.25tn in 2022, will show an annual growth rate (CAGR) of 22.49% and will reach US$8.97tn by 2027. The average transaction value per user today is US$17.28k, but it will increase to US$23.81k by 2027.

As for the number of users, neobanks demostrate significant growth here. So, in 2017 their number was 18.88 million; in 2022, it rose to 187.66 million. But this is not the limit because the projected number for 2027 is 376.89 million. Therefore, user penetration will be 2.5% in 2022 and is predicted to beat 4.8% by 2027.

Nevertheless, when you make a neobank, you should expect much demand for business accounts. For example, you can look at statistics on the growth of the neobanking market in the U.S. by account type.

Neobanking market size growth

Neobanking market size growth in the U.S.

For example, according to Grandviewresearch report, the business account segment overwhelmed the market in 2021 and had the highest revenue share of over 65.0%. In addition, many businesses worldwide are adopting neobanking as the preferred way of payment for bulk payouts.

Making a neobank today is an excellent idea because this direction is in active growth and can bring you many benefits. So let's comprehend the features of online banking and why there is such a demand for it.

How Neobank Works and Why It Is Needed

First of all, let's define once again what online banking is and what its peculiarities are. So, the neobank is completely digital banking, which does not require physical branches and offices. All operations like credit card processing, money transfers, communication with technical support, financial management, and access to savings accounts are online through a mobile or web application.

The popularity of neobanks is also declared by many advantages. For example, they are better client-oriented and do not impose unnecessary paid functions. Let's look at the main dissimilarities between neobanks and traditional ones:

Neobanks differences from traditional bank

Differences between traditional and neobanks

Online access. There is no need[e][f] to go to a bank branch to take a loan or open a foreign currency account - it's just a few clicks in the app.

Regulation. Traditional banks are only regulated by the Central Bank, but if you make a neobank, the Ministry of Finance also controls it.

Accreditation. Conventional banks can only operate with full bank accreditation, and when you start a neobank, you can use payment and financial certification, depending on the services provided.

Presence. The mobile app for conventional banks is only a bonus feature to attract customers —[g][h] the main activity can be done in offline branches. However, in the case of neobank development, the app becomes the primary platform for operational activities.

Another critical question that may interest those who want to build a neobank is how they earn money. In this sense, they're not so different from traditional banks. The primary profit options for neobanks are:

  • Bank commissions. Although they are lower than traditional banks for each customer, they generate imposing income.
  • Interest on loans. The demand for loans from virtual banks increases due to more favorable conditions.
  • VIP clients. Providing premium services for a certain fee is also quite common in banking.

Speaking of customers: when analyzing how to build a neobank, you should be aware of the primary audience of such apps. You may suppose that such digital solutions are in demand only among young people. However, according to Finder research, while men and women ages 18-44 make up most of the audience, neobanks are also heavily used among the 45+ generation. Also, the percentage of male users is higher than females - 58% vs. 42%. As for the territorial point, most downloads are in the European Region and the United States.

In general, the demand for neobanks among users of all ages is growing due to the convenience of fully online banking services and a more thoughtful approach to each customer. People are also attracted by low fees, which are possible due to low transaction costs and various features. Which are the must-haves? Let's explore this further.

How to Make a Neobank: Basic Functionality

To develop a neobank, you must understand what basic features should be included in the first version — the Minimum Viable Product (MVP). Later you can expand the functionality or add more advanced features. However, these are the critical ones to make a neobank:

Neobank MVP features

Neobank features

Authorization

When you build a neobank, the features related to authorization and account management are essential for the security and convenience of you and your client. These include:

Registration. In the case of neobank development, more than just an email or phone number is needed to register a user. The page should also include fields for filling in personal data, which will help confirm the identity. If you want to make this process more convenient, consider using a photo of the driver's license or ID card.

Quick Login. Logging in to the app for registered users should be as easy as possible so they can quickly access it.

Secure authentication. To protect user accounts from third parties, it's worth taking care of login security. So you can use biometric data, such as a face scan or fingerprint, or two-factor authentication.

Financial operations

This block of features applies directly to the targets for which you build a neobank.

Quick transactions. Your application will succeed if you allow users to make transactions in just a few clicks from the home screen.

Loan management. When you start a neobank, it's important to remember that fast online loans are vital. So include automated technology in your app to approve loans based on set criteria and enable users to manage loan transactions conveniently.

Transaction history. Another important feature is access to transaction history. When creating a neobank, remember that the user needs to be able to find out in one click where, when, and how much money was spent.

Payments by phone number. Add to neobank the ability to synchronize the application with the contacts. Users can make transactions without entering their card details every time, which is very convenient.

User experience

Since one of the most important advantages of neobanks is quality user-experience, it is also important to pay special attention to it.

Gamification. The critical difference between neobanks and traditional banks' mobile apps is gamification. So, you can start a neobank that will be as interactive and personalized as possible, significantly increasing user satisfaction. In addition, you can set specific goals, upon achievement of which users will receive bonuses. This will be a pleasant surprise for them.

Technical support. Make neobank with 24/7 access to the support services through a chat. Thus, in the case of any problems, the user can immediately get an answer to their questions or report an issue.

Push notifications. Allow users to receive notifications about credits and debits from their balance, approaching bill payment deadlines, and other activities in their accounts.

Advanced Neobank Features

When you have already started a neobank, you can expand the functionality as you update to make user interaction even more enjoyable for the user. For example, these could be such features:

  • Dynamic CVV. The code can change automatically after a particular time. This will help secure your customers' finances even more.
  • Automatic payment. Creating a one-time bill to be paid weekly/monthly, or yearly is also a convenient feature.
  • Cashback. You can agree with the partners to return a certain amount from each purchase to the client's bonus account.
  • Referral system. You can implement a system of bonuses for inviting friends with the client's promo code - this way, both bank users will get a bonus, and you will get new customers.
  • Cryptocurrencies. You can create a neobank with the ability to buy and sell cryptocurrencies. This direction is now trendy so that it will impress your customers.

Of course, these are only some features you can implement when developing a neobank. FinTech is now actively developing and introducing new technologies that make all operations more manageable and convenient. You can create a neobank with any additional features you deem appropriate.

Need help with the feature list?

The Cleveroad team helps you to determine the best functionality to meet your business goals

Why Develop a Neobank in 2023?

Now that you know the basic details about building a neobank, it's worth considering why you need such a digital solution. If you decide to make a neobank, you’ll receive many benefits such as:

Development benefits

If you are planning to start a neobank, it should be beneficial for you as a project owner. So these are the advantages of a neobank for you:

  • Great flexibility. You manage the project and can decide what features to add and how to interact with customers.
  • Competitiveness. With more valuable and modern features, building a neobank puts you ahead of traditional banks.
  • Great opportunities. The niche still needs to be filled. If you decide to create a neobank now, you will be able to get users more quickly and recoup your investment faster.
  • Attractiveness for investors. Neobank development today is an excellent opportunity to attract investors due to the growing demand for digital financial services. They often invest in exciting and promising projects, and building a neobank could be one of them.

Usage benefits

You should also know why a user will choose your app when you build a neobank. So it has plenty of advantages compared with traditional ones:

  • Convenience. The user can make transactions from anywhere with his phone, which significantly simplifies and speeds up financial activity.
  • Progressiveness. Thanks to the absence of such strict regulation as traditional banks, those who develop a neobank can implement many more modern features.
  • Cost-effectiveness. Because the creators of neobanks don't need to incur the expense of offices/higher staff numbers, they can offer their customers much more favorable savings and lending terms.

Some successful neobanks on the market

To make it easier for you to identify a raw idea and start a neobank, we suggest you study some examples of the most successful applications. They will help you to understand what features can make your bank stand out and what solutions appeal to users.

Monzo

British entrepreneurs created this neobank in 2015; by 2021, it had more than five million users. Today, the company is valued at more than $3 billion. When creating an account, which takes no more than 8 minutes, the user receives a contactless MasterCard.

The creators have built a neobank that provides many different features, including expense tracking and budget planning. In addition, for a fee of £14.99, users can access MonzoPlus, which will give them access to additional benefits.

Chime

The neobank, established in California in 2013, is now one of the fastest-growing in the U.S., with more than 12 million users. It has many exciting features, such as early direct deposit, mobile check deposit, and a savings account that automatically saves money for its customers. Chime is also popular because of its banking services with no fees and excellent customer service. If you decide to develop a neobank, consider this option for inspiration.

Revolut

This digital bank, developed in 2015, now has more than 18 million regular customers and more than 500,000 business accounts. Its remarkable features are:

  • Multiple currencies in one account
  • Peer-to-peer transactions
  • Currency exchange
  • fee-free foreign exchange
  • Notifications on exchange rates and more

Thanks to abundant features, the application is top-rated among users worldwide.

Discover how FinTech apps are developed in our article

Points to Consider Before Developing a Neobank

Before we explore how to create a neobank from scratch, it is worth elaborating on some issues that should be resolved before development starts.

Know Your Customer

KYC is a necessary procedure that helps guarantee the security of payments and banking transactions. It involves conducting a counterparty identity check before completing transactions. It helps protect financial institutions from fraud, corruption, money laundering, and terrorist financing. KYC compliance is mandatory for fintech companies, so if you plan to build a neobank, you must implement it.

The KYC algorithm is relatively straightforward and implies the following:

  • The institution requests information about a person or a legal entity
  • The data is matched with the databases
  • In case of problems (e.g., suspected bribery or sanctions), the transaction is rejected, and the user is blocked

In any case, you only need to know about the process in general terms. An experienced FinTech software development company will take you through all the details and peculiarities of KYC integration.

Know-Your-Customer screen

KYC screen by Cleveroad

Security

Another vital question is how to build a neobank secure for customers? The answer is simple: when choosing a vendor, you should pay special attention to its experience in security. The best solution would be to look at customer reviews and the availability of security certificates. For example, Cleveroad has the AWS Security Certificate.

So, what security measures can be implemented when creating a neobank? Solutions may be as follows:

  • Guard Duty (registers accidents on the network level)
  • AWS Shield (prevents DDoS attacks)
  • AWS config firewall rules (safeguards against accidental coding mistakes)

Also, you can integrate blockchain, providing even greater security and transparency of operations. Blockchain in FinTech is becoming a trend today so this solution may become profitable in the long term. Tell the vendor about your goals, and they will help make a neobank with the highest level of security.

Explore 15 best blockchain startups in our article

Regulation and Compliance

Neobank development is impossible without compliance with all legal laws. You should determine which countries you plan to launch your product in, and then your technical partner will help you figure out which licenses you need to obtain.

Card issuance

If planning to make a neobank, consider the interaction with a debit or credit card.[av][aw] It can be physical or completely virtual. You can cooperate with an existing provider or get your own Bank Identification Number (BIN). It will take longer to get your own, but it will be more convenient later. Also, you will need to meet specific standards if you issue the cards yourself rather than working with a third-party vendor. To determine which option will be better for starting a neobank, train this question with your technical partner during the Discovery Phase.

These and other challenges related to neobank development can be solved easily with the help of a professional software provider, so don’t worry if your idea is raw or if you need to be versed in some technical aspects.

Create neobank with domain experts

The Cleveroad team will conduct a full analysis for you and help you deal with all the challenges

The First Stage of Neobank Development: Before Coding

The initial stage of neobank development includes research, consultations, and discussions.

Choosing a technical partner

As we’ve already mentioned, to start a neobank successfully, it is crucial to contact a professional software provider with impressive experience in FinTech. Outsourcing software development is a common practice among entrepreneurs due to its multiple advantages:

  • A vast number of talented experts
  • A whole team of already selected and trained experts
  • A complete and diverse technology stack
  • Reasonable prices and high quality
  • Choice of cooperation models: from a dedicated team to full outsourced development

To make the right choice and create a neobank, you should conduct brief research on platforms like Clutch, which provide complete information about the company and customer reviews. Then, when you decide on the choice, you can contact the chosen technical partner to discuss how to start a neobank and move on to development.

Neobank development

Neobank development process

Solution phase

Once you have decided on a technical partner, the next phase begins. This is where you discuss all the details about how to create a neobank from scratch. At this stage, research is conducted, and important decisions are made. At Cleveroad, we hold a special Solution Design Workshop with a team that includes business analysts (BAs), a solution architect (SA), and a designer. The team determines:

  • Business goals
  • A work scope
  • Main constraints & concerns
  • Basic quality attributes

Also, at this stage, the team provides you with a rough cost estimate and approximate neobank development time.

Discovery Phase

Speaking of how to build a neobank, this stage can be called one of the keys. A dedicated team of solution architects, business analysts, a project manager, and designers if needed perform a complete analysis of all project details.[bl][bm] At this stage, such details are figured out:

Neobank architecture

It is essential to determine what your application will be and what platforms it will support. You can choose Android or iOS or consider cross-platform development on Flutter.

Business model

You must also choose the right monetization strategy to make sure that your app generates constant income. As we mentioned earlier, monetization models such as bank commissions, loan interest, and premium services are most relevant to you. You can build a neobank with any other business model that seems right.

Regulation and compliance

Together with your software provider, you can run a full compliance review on all the regulatory details to start a neobank quickly and efficiently.

Payment services and integrations

There are many financial service providers out there, so your technology partner will help you with the most suitable ones.

Technological stack

Developers will determine the most appropriate technologies based on the requirements and features to help bring your ideas to life.

Also, all requirements are clearly defined and then converted into development documents such as:

  • BPMN diagrams, UML diagrams, impact maps, and flowcharts (business process analysis)
  • design concept and UX map (design prototype)
  • Feature Breakdown List (FBL) and all info that can impact (quality attributes, design concept & UX map)
  • A detailed estimate of the product development costs by platforms

Once all the details of neobank development are clarified, you can move on to the next stages.

How to Create a Neobank and Launch It Successfully

So, all the requirements for the project are formed, the features and technologies are selected, and you can move directly to developing a neobank.

UI/UX design

In the case of the neobank, design is critical. The user needs to interact easily with the application, and all actions must be quick and intuitive. At this stage, a team of designers from the wireframes and concepts, making neobank mockups screen by screen, and working out every tiny detail. Once everything is ready and you approve the design, it will be handed over to the developers for further work.

Discover how UI/UX design is created at Cleveroad

Product development and testing

This is where the programming team gathers all the documents created during the discovery phase, the design concepts, and starts coding. Then, security tools, third-party integrations, and back-office tools are implemented. As a rule, we create software in several sprints, during which the project manager sets specific tasks to be completed. Also, each process is accompanied by quality assurance to ensure that project development is progressing correctly. The testing team also conducts automated and manual tests after each stage, including stress testing (test operation under heavy loads), regression testing, and verifying the correctness of all features.

Deployment

Once your neobank is created and tested, it can be launched to the audience. At Cleveroad, we help our clients successfully release apps to Google Play and App Store. Also, provide you with all project materials such as source code, Software Architecture Document (SAD), feature breakdown list, software specification, design files, etc.

Maintenance and Updates

When you decide to build a neobank, you should understand that such a complex project will require further technical support. These actions may include adding advanced features, code optimization, versions updates, maintenance of integrated software, etc. So that your customers are satisfied with their interaction with the neobank.

The Practice of Building Ebanking and Neobanking Systems

Cleveroad is an outsourcing software development company located in Central/Northern Europe. Thanks to our 10+ years of experience in delivering fintech soft solutions, the Cleveroad team is ready to provide a complete package of services to create a neobank. We have over 120 experienced engineers who have jointly completed over 170 successful projects. Our experts develop software that facilitates online payments, financial analytics, and banking and ensures security, legal compliance, and data protection. Working with us, you get the following benefits:

  • Complete consulting from our domain experts on the FinTech regulation issues
  • Flexible monetization models: dedicated team, staff augmentation, etc
  • The Quality Assurance service is provided at every stage of product development
  • Full-service development, including legacy soft modernization, cloud-based solutions, UI/UX design, IT support, etc
  • Signing Non-Disclosure Agreements (NDAs) per your request

To better understand how to start a neobank, consider our case of creating an eBanking software system that covers the needs of bank clients, optimizes the operators' workflow, and automates core internal business processes for a Swiss bank.

The client set us the task of replacing the outdated MVP version of online banking, which was slow, complicated, and incomprehensible, with a more modern solution. The Cleveroad team had to develop a software solution with an improved user experience that would automate all banking processes while complying with regulatory requirements for investment bank software, namely FMIA.

Our specialists created a solution that met the client's requirements and integrated with the company's existing software. To do this, we conducted a complete analysis of the client's business goals. Then, the cleveroad team developed a product architecture based on the requirements: user-friendly sign-up, digital account opening system including KYC pass, and online banking portal.

eBanking app

eBanking by Cleveroad

Neobank development in detail

For more efficient work, we created three separate teams, each of which included 2 stakeholders from the customer side: The Product Owner and Tech Lead, as well as the Solution Architect (SA), Tech Lead, project manager (PM), business analyst (BA), DevOps, a UI/UX designer, backend and frontend developers, manual and automation QA engineers from our side. Each team was responsible for their process: Sign-Up, Digital Account Opening, and Online Banking Portal. In addition, the Cleveroad team did all research and solution-making.

Our developers also considered compliance with technical security and data protection standards and FINMA circular. It included:

  • Data encryption in transit and at rest
  • Secure storage of bank customers' documents
  • Role-based access control
  • OWASP secure design principles
  • GDPR Compliance, etc.

To build a neobank, the Cleveroad team used C#, MSSQL, and Redis for the development backend, React and Redux for the frontend, and the AWS infrastructure. In addition, the project included third-party integrations such as DocuSign, Typeform, and AWS Forecast.

As a result, our clients received:

  • Full-fledged eBanking ecosystem that met all regulatory requirements
  • Increase in customer acquisition by 20-30% and greater loyalty of regular customers
  • Continuous business improvement and full technical support

As you can see, today, neobanks are in the wave of popularity and are in demand among clients. If you already have a sketch of an idea, come to us, and we will help you transform it into a full-fledged project. So make a neobank today to take your rightful place in this niche and get ahead of the competition.

Build your own neobank with us

Our development team will consider all your wishes and develop a perfect solution for you

Frequently Asked Questions

The neobank is completely digital banking, which does not require physical branches and offices. All operations like credit card processing, money transfers, communication with technical support, financial management, and access to savings accounts are online through a mobile or web application.

Step 1. Find a reliable technical partner Step 2. Determine the key features of neobank Step 3. Make a neobank design Step 4. Develop a neobank Step 5. Test the application Step 6. Launch neobank Step 7. Maintain and update the app

There are three most common monetization models for neobank:

  • Bank commissions. Although they are lower than traditional banks for each customer, they generate imposing income.
  • Interest on loans. Due to more favorable conditions, the demand for loans from virtual banks increases due to more favorable conditions.
  • VIP clients. Providing premium services for a certain fee is also quite common in banking.

The main dissimilarities between neobanks and traditional ones are:

Online access. The critical distinction is the needlessness to go to a branch to take a loan or open a foreign currency account - it's just a few clicks in the app. Regulation. Traditional banks are only regulated by the Central Bank, but if you make a neobank, the Ministry of Finance also controls it. Accreditation. Conventional banks can only operate with full bank accreditation, and when you start a neobank, you can use payment and financial certification, depending on the services provided. Presence. The mobile app for conventional banks is only a bonus feature to attract customers since the main activity can be done in offline branches. However, in the case of neobank development, the app becomes the primary platform for operational activities.

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