Comprehensive Guide to How to Start a Neobank

how to start a neobank

The dawn of the digital banking era is upon us, and the days of brick-and-mortar traditional banks are long gone. These days, tech-savvy people are more inclined towards neobanking rather than traditional banking. As the events have shaped recent times, traditional banking has become more costly and less about serving customers. On the other hand, financial technology firms, better referred to as FinTech companies, have seen this loophole and chosen to capitalize on this golden opportunity. As a result, financial institutions have presented people with a solution that caters to their needs the best. That solution is none other than neobanks and digital banks. The neobank platform, in particular, is the star of the show. In this emerging trend of digital banking services, it has managed to steal the spotlight for itself.

According to Statista’s report“The neobanking market is set to grow with the number of users reaching more than 386 million by the end of 2028. Moreover, the transaction value of the market will go well above US$6.37 trillion in 2024.”

Those are some serious numbers, and they make all the sense in the world, considering the customer experience that Neobanks offers. The user experience is shaped thanks to the convenience and freedom that neobanks offer. Seeing the rise in the popularity of neobanks, many FinTech startup firms want to start a digital bank. But starting neobank is not as easy, and if you’re thinking of developing a neobank from scratch, then you need proper guidance. That’s why this blog will talk about some pointers that will help you build a neobank. Moreover, with the tips on how to start a neobank from this blog, you can learn how to build and launch your neobank this year. So, without further ado, let’s get right into it.

What is a Neobank?

A neobank is a fancy word for a digital bank, and like most digital banks, neobanks are financial institutions that are run solely online through mobile apps. These banks do not have a physical branch. And unlike traditional banks, neobanks don’t have a legacy of brick-and-mortar operations. Instead, they use modern technologies to their advantage to carry out operations and provide financial services. These latest and greatest tech features allow neobanks to cater to customer needs in a more convenient, accessible, and cost-effective manner. That is because, unlike traditional banks, neobanks do not force policies down our throats, as the regulatory requirements for neobanks are quite low compared to traditional banking.

With fewer regulatory compliance bells ringing, neobanks have managed to build such a loyal customer base. Moreover, neobanks offer many of the same services as traditional banks to bank account holders in the USA, such as checking bank accounts and savings accounts, debit cards, personal loans, and payment processing. However, the manner in which neobanks provide those services makes them stand apart from traditional banks. Also, neobanks have to team up with other established banks or financial institutions in order to run. Those firms take care of the regulatory licenses and infrastructure for handling customer deposits and transactions.

 

What is a Neobank

 

What Benefits Does a Digital Bank Offer Over a Traditional Bank?

The benefits that neobanks offer over traditional banks cannot be overstated, as there are quite literally far too many benefits. For starters, convenience and accessibility are the first benefits that neobanks bring to the table. That is because they allow customers to access banking services from just about anywhere in the world, at any given time, using the app on their phone or laptop. The hassle that comes with traditional banks to visit physical branches during limited business hours is removed with neobanks. Not only that, but neobanks also do that at much lower fees as these banks are operated mainly online.

This way, the overhead costs of neobanks are far too low compared to traditional banks. The costs saved are used to provide benefits to customers in the form of lower fees. Moreover, in order to start a neo bank from scratch, a firm puts a digital-first mindset at the heart of its neobank app development. This way, neobanks have innovative features and technologies that provide real-time spending analysis, automated savings tools, personalized financial insights, and streamlined account management. Moreover, the account opening process is also much faster as there is no need for physical documentation or branch visits like it is with traditional banks.

 

What Benefits Does a Digital Bank Offer Over a Traditional Bank?

 

Understanding Neobank Business Model for Building Your Own Neobank

Neobanks work under a distinct business model that differs from traditional banks. The value proposition and business model are quite unique as they are structured to serve the user’s neobank needs and provide customer support while ensuring they can protect customer data along the way. The business model of neobanks works as that of a Banking-as-a-Service (BaaS) partnership. That is because these banks partner with established banks or fintech firms. The partner bank provides neobanks with the required banking licenses, regulatory compliance, and infrastructure for handling customer deposits and transactions.

 

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This way, neobanks can focus on doing what they do best. That is to deliver convenient banking experiences to customers without unnecessary costs and regulatory burdens. Those headaches are related to a full-fledged bank. Moreover, the customer acquisition of neobanks is also quite different from that of traditional banks. Traditional ones rely on physical branches to make customers. Neobanks, on the other hand, gain customers through digital ways. This includes mobile apps and online marketing. Also, the revenue source of neobanks is different from that of traditional banks. That is because they generate money from account fees, interchange fees from debit card transactions, and premium subscriptions.

 

Understanding Neobank Business Model for Building Your Own Neobank

 

How Can You Set Up a Neobank

Starting a neobank is nothing short of a complex process. That is because it requires careful planning and compliance with regulations. Moreover, you have to choose the right business model that focuses on delivering a convenient banking experience to customers. However, there are a few steps and considerations that you will need to take to build a neobank that stands out from the rest. Moreover, you will need to get the necessary licenses. Also, you must comply with regulations by getting approval from local authorities, depending on the jurisdiction. This can be a bit time-consuming. Also, all of it needs technical expertise that only lawyers can deal with. Once that is out of the way, you’ll need to develop a technology infrastructure for your neobank. It could be a mobile app or an online platform. After that, you’ll need to partner with fintech firms that provide banking services.

These include account opening, deposits, and transactions to customers. You will need financial funding from sponsor banks or other investors. Once the financial resources are in check, you will need to form a strong team and corporate structure with knowledge of finance, technology, product development, marketing, and regulatory compliance. After creating a team, you will need to develop a marketing strategy that suits your business best. This will allow you to make customers through digital means. It could be through partnerships, influencer marketing, advertising, or social media platforms. Once that is done, then you will need to stay on your toes to keep your business floating by continuously improving it. That is because the neobanking landscape is highly competitive, and it’s always evolving. To keep up with the competition, you’ll need to up your game by improving your offerings. Moreover, you must adapt to changing customer demands and market trends.

 

How Can You Set Up a Neobank

 

You’ll Need to Take Key Steps to Start a Neobank from Scratch

The steps we have talked about so far are only half part of the journey, as there’s much more left to do in order to start a neobank in 2024.  People always ask how to start a neobank but fail to get their own concepts cleared. Those are, after all, the most important aspects to build a neobank in 2024, as they were to build a US neobank in 2023 as well. The two steps below will make your concepts clear and will surely help you get an idea of how to start a neobank.

 

You'll Need to Take Key Steps to Start a Neobank from Scratch

 

The first key step to ensure your neobank is built in the best way possible is to research the market. Researching allows you to get an idea of the market and its trends. With each day, technology is improving, and the neobank industry, which is based on technology, is no different. It is highly dynamic and evolving at a rapid pace, driven by changing consumer preferences and regulatory shifts. Therefore, staying relevant and competitive in the industry takes some doing, which is why you will need to research and incorporate the latest market trends into your neobank strategy. This way, you can make sure that your neobank is modern, sophisticated, and meets evolving customer needs.

Define Your Target Audience and Value Proposition to Open a Neobank

The next thing you will need to do is target your target market audience. Moreover, you will need to create a value proposition that looks after the needs of your target customers. This could involve offering innovative features and personalized services. Also, based on your research on the target audience, you will need to create a clear and compelling value proposition that communicates the unique benefits and advantages your neobank offers. These benefits could be features like innovative digital tools, personalized financial advice, or tailored product offerings.

 

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This is why defining a clear target audience and value proposition is crucial for the success of any neobank. Also, this strategic approach will help you create a neobank that truly resonates with your customers. Moreover, it will allow you to tailor your services, messaging, and marketing efforts. This way, you can deliver an exceptional banking experience to your customers that sets your neobank apart from competitors and makes it stand out.

Build a Neobank App to Launch a Neobank Business

If you are still wondering how to start a neobank, then the best way to do it is to start a neobank app. You will need to do it by building a neo bank app. A neobank app is like a digital banking app, but it is the heart and soul of a neobank business. That is why when you create a neobank app, you will need to ensure your neo banking app is modern and has the latest features. Also, you must ensure that the app is user-friendly and easy to use.

That’s because the success of your neobank business depends very much on the neobank software. After all, the app will be the only platform for customers to make payments and manage their financial services. Since it is a digital-only bank, the neobank security must be solid and impenetrable. Your neobank app should have must-have neobank features. Some of these features include account opening and onboarding, account management, money transactions, bill payments, budgeting tools, and customer support.

 

Build a Neobank App to Launch a Neobank Business

 

What is the Estimated Digital-Only Bank Development Cost?

Before we dive deep into neobanks mobile app development, let’s talk about how much it all costs. For starters, software development requires a careful development process that is dealt with by a development team of expert project managers, designers, developers, and testers. The development process itself includes planning, designing, development testing, and maintenance. All of these stages, combined with the cost of hiring a development team, can sit somewhere around $15,000 to $30,000.

However, as for neobank development, the cost increases due to the complexity of the FinTech project. These include integrating with third-party services and API and dealing with regulatory compliance. The cost to build your neobank app can range from $40,000 to all the way $100,000 or above. Developing a neobank app is like everything except developing a normal app. And it is certainly not a job for amateurs. That is because the skills required to pull off the project can only be met by true experts in the field.

 

What is the Estimated Digital-Only Bank Development Cost?

 

How to Develop a Neobank App Easily and Cost-Effectively?

The costs of developing a neobank app are high. As the popularity of neobank grows, the demand for neobank app development also increases. Soon enough, people will start asking how to start a neobank without breaking the bank. Even now, if you do not cut ties or control the development costs early on, the development cost can reach hundreds of thousands of dollars with ease. So what are the best ways to save development costs and how to start a neobank app as cost-effectively as possible? To find out more, we will be discussing a few pointers below. These tips will help you save on neobank development costs.

 

How to Develop a Neobank App Easily and Cost-Effectively?

 

Choose the Right Neobank Development Partner

The best way to save on unnecessary development costs is to partner with an experienced development firm early on. That is because a reputable and experienced development firm knows how to start a neobank business by developing a neobank app. So, teaming up with a trustworthy and reliable partner early on is key to saving on extended development costs. Moreover, their expertise in the field will give you financial security, knowing that your development project is in safe hands.

But choosing a reliable partner can be tricky. That is why, when searching for options in the market, you will need to evaluate the skills, experience, and expertise of the firm. You will need to evaluate their team’s technical knowledge and skills. Moreover, you will need to check the company’s past projects. This way, you can get an idea of how their work stacks up against the work they promise to deliver.

Focus on MVP Cost to Build a Strong Neobanks App

Another way to build a neobank app cost-effectively is to adopt a Minimum Viable Product (MVP) approach. That is because this approach will allow you to focus on the core and essential features and functionality of the app. This way, you will not have to worry about adding some fancy bells and whistles. Those features will both take time and cost more. The MVP strategy involves prioritizing the core features and functionalities. After that, it is about iteratively adding more features based on user feedback and market demands. This way, you can create a fully-fledged app easily and quickly without spending too much money on development.

Prioritize Must-Have Features

Like the MVP strategy above, we suggest you stick with the must-have neobank features for your neobank app. This is probably the most underrated tip out of all. Most stakeholders somehow fail to notice it when developing a neobank app. Instead, they dream of creating an app that can do it all for customers. They start loading it with a multitude and loads of features that stack on top of one another. While it might sound good, what it does is make the app highly complex, sluggish, and unresponsive.

Also, the size of the app increases as a result. Users also find it hard to use or interact with it. Not only that, but all those features come at a huge price. They add up to the development cost, increasing it to a couple of hundreds of thousands of dollars. That is why striking with essential and must-have features is the best option. Not only does it make the app perform well, but it also keeps the development cost low.

Focus On User-Friendly App Design to Build a Neobank from Scratch

Last but not least is the app design, which plays a great deal in shaping the development costs for the better or worse. A flashy app with pointless animations can make the app unresponsive. Moreover, those app UX and UI designs come with huge costs. On the other hand, simple, clean, and intuitive UX and UI designs make the app look appealing. Moreover, the best neobanks have good UX and UI designs. These designs help build trust with the users. So, when you are developing a neobank app, you must make sure that the app’s design aligns with your brand image. It will allow the app to achieve your business goals and resonate with your audience.

Final Thoughts

That is all there is to discuss for this blog on how to start a neobank. We hope that the key pointers we have mentioned in this blog can help you start your neobank by developing an app. If you are looking for a development partner to develop your neobank app from, then consider choosing Linkitsoft. They are expert developers with over ten years of development experience across all sectors. Also, if you liked reading this blog, we suggest you check more like these out on our website.

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