Starting a Neobank: An Outline of the Essentials

Denis Astapchenia

Denis Astapchenia

Director of Financial Technologies

Financial Services
Oct 5, 2022
8 minutes to read
  1. What is a neobank and how does it work?
  2. Neobanks, digital banks, and traditional banks - what’s the difference?
  3. Key benefits of neobanking
  4. Challenges of building a neobank
  5. Developing a neobank from scratch: steps and core features
  6. The discovery phase
  7. Elaborating the design
  8. Creating an MVP
  9. Testing, deployment, and maintenance
  10. Conclusion

Today, making a transaction by simply swiping across the screen of a mobile device is becoming the new normal. As technology excels, both market behemoths and fintech startups must consider leveraging artificial intelligence, cryptocurrency payments, blockchains, and other achievements of the digital era to gain a competitive edge. One of such novelties is digital-only banks. Having been around for the last fifteen years, they are now gaining momentum as more and more clients take for gra nted the ability to make instant, fee-free, multicurrency, and highly secure transactions. What is their role in the financial landscape, what products do they offer, and is it worth founding one? Read on for our professionals’ opinion.

What is a neobank and how does it work?

The banks that most of us are used to are physical branches with ever-busy clerks and heaps of documents. Yet some functions of these old-fashioned institutions have increasingly been taken over by companies that have, in fact, nothing to do with banks.

The neobank definition includes digital-only initiatives launched by non-bank companies. They make it possible to perform some of the habitual banking operations in no time and free of cost via dedicated platforms.

How exactly does this work? The companies providing such services get their revenue mainly through establishing substantial interchange fees, charging their clients for using third-party ATMs, and seeking funding from investors who sometimes represent large financial institutions. To be able to operate, they either apply for a banking license or collaborate with regulatory-compliant banks, or else avail themselves of both the above options.

Some outstanding examples of national and international neobanks include the South Korean Kakao Bank, the Chinese WeBank, the US Chime, the well-known UK-based Revolut, the German-based N26, the Spanish Bnext, and the world’s highest valued establishment of this kind as of 2021, the Brazilian Nubank.

The size of the neobank market is growing at an incredible pace of