How to start a neobank: A complete guide

The robust advent of Industry 4.0 has revolutionized all spheres of life in the 21^st century. The vast majority of people leverage their mobile gadgets and desktops to work, study, shop, and have fun. The across-the-board IT drive received a powerful boost with the outbreak of the global pandemic when companies had to switch to remote mode in their client-facing activities.  

To meet their customers halfway, organizations embrace digitalization on a growing scale to provide clientele with as wide a list of online services as possible. Moreover, some startups have harnessed a digital-only business model that ignores a company’s physical presence on the market and establishes an exclusively virtual functioning of a brand. In the financial and banking services realm, this niche is occupied by neobanks.  

Neobanks: Financial institutions hailing from nowhere

Neobanks (or challenger banks) offer exclusively online banking services (as a rule, focusing on payments) and have no brick-and-mortar central office or physical branches. With a few taps, customers can contact them via a web or mobile app and obtain a wide range of digital banking services. Such simplicity of usage accounts for the steady increase in the number of digital-only banks’ clients (for instance, in the USA, the 2025 forecast assesses their quantity at more than 53 million, which equals almost 20% of the country’s population).  

Are neobanks the same as digital banks? Not quite. The term “digital bank” describes any financial institution that offers online services to its clientele. It can be part of a traditional bank’s digitalized ecosystem or a digital-only financial organization. By contrast, the term “neobank” is associated exclusively with the latter type of enterprises that exist entirely online. 

There are two basic types of challenger banks: 

• A full-stack neobank is a full-fledged financial organization with a banking license, which allows it to operate independently.  
• A frontend-focused neobank. Without a banking license, such companies partner with a certified financial organization and employ a Backend-as-a-Service (BaaS) model in their functioning. 

To generate revenues, neobanks utilize one of the five major monetization approaches.  

• Interchange-led approach. The company receives some interchange every time its customer pays with its card. 
• Credit-led approach. Clients get credit cards, which are then bolstered with bank accounts. 
• Product extension approach. This is a variation of the previous model in which neobanks earn revenue by regularly increasing the roster of their financial services. 
• Asset-led approach. Its core is savings accounts offered to the target audience, who are encouraged to deposit their money at competitive rates.  
• Ecosystem-led approach. Here, financial institutions create an entire network of monetization channels (for instance, monthly subscriptions) that contribute to their revenue stream.  

Additional sources of income for a challenger bank can come from offering lending products (as a rule, personal and business loans), cross-selling and upselling auxiliary products and services, and data monetization when they sell customer data they obtained during their campaigns and shop floor operations. 

Whatever model they leverage, neobanks attract customers with foolproof navigation, user-friendly interfaces, low rates, and innovative online banking capabilities. The neobank market grows exponentially — from $47 billion in 2021 to the expected $2.05 trillion in 2030, manifesting an astounding CAGR of 53.6%.  

Evidently, people see the crucial perks that challenger banks have over traditional banks. However, the latter can also boast some fortes. Let’s compare them closely.  

A traditional bank vs a neobank: Differences made plain

DICEUS is a seasoned IT vendor that has developed numerous fintech products, so we know the banking industry inside out to pinpoint the key differences between these two types of organizations.  

1. Physical presence. A person can come to a traditional bank to be served, whereas to access a neobank’s capabilities, they need only their gadget with a stable internet connection and an app installed on it. 
2. Banking license. Traditional banks can only start working once they receive this official permit. With neobanks, it all depends on the organizational model. Full-stack challenger banks are required to get one, while frontend-focused ones may do without it, relying on the certificate their partner has. 
3. Operating costs. Since they don’t have to splurge on personnel salaries, workspace rent, acquisition and maintenance of equipment, etc., neobanks have lower operating expenditures mostly related to the payment for using servers and software.  
4. Fees. The lower an organization’s OPEX, the smaller the price tag for its services. Since challenger banks have fewer expenditure items on their budget roster, they can surprise their clientele with lower fees and higher interest rates. 
5. Primary goal. Traditional banks are credit institutions in their essence. Their chief function is to give people money they need for various purposes and receive it back with some interest. Neobanks focus on payments as their core activity.  
6. Roster of banking services. In traditional banks, it is much longer, including loans, stock market investments, currency exchange, insurance, savings products, personalized advice, and more. Neobanks offer a limited range of services, usually account opening, payments, withdrawals, and money transfers. 
7. Availability. Brick-and-mortar facilities are open only during working hours on business days, and you have to be there to receive the service you need. Neobanks have a definite edge in this aspect since customers can visit them virtually 24/7 from any location with internet coverage.  
8. Speed of operation. Traditional banks rely on the competence and agility of their staff to do their jobs. Plus, queues may significantly prolong the time clients spend waiting to be served. With neobanks, the only limitations to the speed of service are the digital skills of the client using the app and the quality of the internet connection.  
9. Onboarding. Conventionally, you have to visit a traditional bank in person, undergo a thorough checking procedure, and fill in lots of papers to open an account. Challenger banks rule out red tape during account opening, which can be completed online with several clicks at your convenience.  
10. Technology. Being reliant on cutting-edge know-how, neobanks respond faster to innovations in the fintech niche and offer their clientele a first-rate customer experience. Traditional banks are slower to harness innovations, so their solutions tend to be more complex and less user-friendly. 
11. Regulatory compliance. Both types of banks are on par in this aspect. It doesn’t matter what kind of financial organization you run. If you start a neobank or a traditional bank, you must observe the same numerous intricate regulatory compliance standards concerning customer data safety, AML, KYC, and more. 
12. Security. To protect customer data, challenger banks delegate security measures to software developers and cloud service providers. Traditional banks typically rely on their in-house security office center, which is responsible for guaranteeing the protection of operations and data.  
13. Customer support. Clients of traditional banks can receive assistance and advice by visiting the facility in person or making a phone call. In both cases, the support is provided by a dedicated adviser. Being digital banks at their core, neobanks leverage a multitude of 24/7 online channels (email, instant messaging, social media) with a focus on virtual assistants and chatbots.  

To win and expand a neobank’s customer base and bring maximum value to its users, you should know what capabilities your neobank app should have. 

The first step in neobank development: Determining features to include

Our long-term experience in banking mobile application development has allowed DICEUS to pinpoint the basic feature roster for a neobank. The key capabilities include:  

• Signing-in. Using unique passwords, customers access the main dashboard to start operating their neobank app. 
• Account opening is how users begin their cooperation with challenger banks. Such a capability should become a one-stop shop for them, enabling them not only to open and view their accounts but also to manage multiple accounts (especially savings and checking accounts) and transfer funds between them. The latter functionality should have an automation option.  
• Debit and credit cards. These should be managed within the app as well. Customers must be able to monitor card balances, track transactions, and control operations with the card (freeze/unfreeze it, change PIN code, set spending limits, and the like). 
• Payments. The wider the range of payment options (bill payments, tax payments, peer-to-peer transfers, direct debits, and more), the better customer experience users will get. 
• Transaction history. Here, customers can view all operations occurring within their accounts, including payments, bank transfers, and card transactions. This capability is pivotal for analyzing their spending habits and financial management efficiency. 
• Notifications. They allow users to stay abreast of their account activities – both regular (such as incoming and outgoing payments) and suspicious ones that can indicate fraud or tampering attempts. 
• Budgeting. Although this feature was a pleasant bonus some time ago, it has become a vital necessity today. Integrated budgeting tools send alerts when a person approaches a pre-defined spending limit and help with tracking expenses, setting spending goals, categorizing expenditures, and more.  
• Help desk. Typically existing as a real-time chat, this support functionality enables users to receive responses to their queries and enjoy qualified assistance concerning issues they have. 

Advanced features to consider when building a neobank from scratch

You can turn your neobank app from a garden-variety product into the best-in-class solution by augmenting it with the following advanced features.  

• Biometric authentication. To increase the level of customer and financial data protection, you should equip your app with Face ID or Touch ID capabilities. Moreover, under current industry regulations, it is a necessary measure.  
• Customization opportunities. These aren’t just about the ability to choose a theme or select an avatar. Customers must be able to tailor their account limits for cash withdrawals and other transactions, schedule recurring payments, etc.  
• Investment options. This feature allows users to try their hand at stock and bond operations. From a dedicated dashboard, they can keep track of their investment portfolio and fine-tune (or even completely overhaul) investment strategy. 
• Business tools and apps. Here belong various invoicing platforms, accounting solutions, and expense management systems. They will be highly instrumental for entrepreneurs who will be able to manage their financial activities without leaving the neobank app. 
• Access to third-party services. Like usual digital banks, challenger banks should extend to their clientele an opportunity to rent a car, buy tickets, book a restaurant table, and perform other financial operations with third parties.  
• Cashback. This is an excellent way of incentivizing people to use your neobank app since they can return some percentage of the money they spend on services and goods in supermarkets, travel agencies, restaurants, and other organizations you establish partnerships with. 
• Bill splitting. If you frequently go somewhere in the company with your friends or family, this feature will help you automatically calculate your individual share in the total bill to be paid at an establishment.  
• Integration with wearable devices. Smartwatches, fitness trackers, and other smart devices are gaining ever-increasing traction, so it makes perfect sense to unite them into a single ecosystem with your mobile phone and use any of these gizmos for making payments. 
• NFC and QR are two more state-of-the-art technologies with numerous use cases in many spheres of our lives, and that list is only going to grow. That is why future-oriented neobanks should include them in their feature roster. 
• Voice control. The accessibility of your neobank app will be greatly improved if you equip it with voice command option during the development process. In this way, you will empower people with eyesight and locomotor system impairments to use your product.  
• Foreign exchange access. In our globalized world, cross-border trade and banking operations (including currency exchange) are quickly moving to the top of most-wanted options for people who do business on an international scale. 
• Customer engagement capabilities. Discounts, rewards, special offers, coupons, loyalty programs, and gamification are vital elements of brand and product promotion, so neobank owners should also be able to leverage these lead nurturing and customer engagement tools.  
• Priority customer support. It can be extended to premium clients who are entitled to immediate responses to their queries and the assistance of dedicated support personnel. 
• Junior packages. Your customer base can be considerably enhanced if you enable your customers to open a special account for children who will be involved in financial activities under their parents’ control and supervision. 
• Cryptocurrency operations. Bitcoin, Etherium, and other crypto coins have become part and parcel of financial operations for many advanced users nowadays. Neobanks should keep this door open for them and allow trading cryptocurrencies directly from their account. 
• Impact score. The ability to calculate this index based on their expenditures and investments is a nice bonus for environmentally-minded customers who prioritize sustainability across all their activities.  

When you determine the features your neobank app will contain, you are ready to move on to its creation.  

The neobank app development pipeline scrutinized

While building mobile banking solutions of all kinds, our team of seasoned experts follows a straightforward roadmap consisting of eleven foolproof steps. 

Stage 1. Discovery and idea definition 

The departure point for neobank creation is identifying the special banking needs of a certain target audience (for instance, e-commerce business owners or freelancers). After that, our development team, in close cooperation with the customer, determines the unique selling proposition of the future app. When we know what to aim for, we discuss the neobank app’s scope of features, scalability opportunities, integration needs, and other business and technical requirements for the project.  

Stage 2. Market research 

Here, the DICEUS experts perform a thorough and meticulous analysis of the entire industry and the particular niche, explore contemporary trends that dominate there, discover market size and growth potential, assess competition, and review rival products, focusing on their advantages, shortcomings, and pricing strategies.  

To complete the picture of the market landscape the app will function in, our specialists dig deep into the specifics of the target audience, their demographics, income level, cultural peculiarities, behaviors, expectations, preferences, and pain points. The key deliverable of this procedure is creating an ideal customer profile for the neobank-to-be. 

Step 3. Ensuring compliance and security 

Usually, there are no direct audits or regulations concerning challenger banks. However, they have to comply with industry security standards, anti-money laundering initiatives, and customer data protection norms. Why? Because otherwise, they won’t be able to find partners in the domain, and users aren’t likely to come in droves if they aren’t sure their financial and personal information is vulnerable to leakages and hacking. That is why we practice a security-first approach in creating neobank apps and guarantee their compliance with GDPR, CCPA, PCI DSS, and other legislative norms adopted in the industry.  

Step 4. Creating a prototype 

In fact, what is known as a prototype goes through several phases of maturation. At first, a click dummy as a UI-based working model is created. If the product owner approves the mockup, it is sophisticated and upgraded to become a proof of concept. Finally, the developers build the prototype proper, which is founded on user stories and job stories and represents the neobank’s design, structure, and logic.  

Step 5. Designing U/IUX 

As soon as feedback on the prototype’s performance is analyzed, UI/UX designers set to work. Their major goal is to create an intuitive and visually attractive app that is simple to navigate, compatible with different screen sizes, and meets the target audience’s expectations. As our experience in banking app UI/UX design proves, customers in the niche prefer something other than bells and whistles. A no-frills and neat design of a neobank app is just what the doctor ordered.  

Step 6. Getting to grips with a tech stack 

The selection of frameworks, languages, and tools for a neobank app is performed with an eye to the technical requirements for the project and especially the operating system the app will run on. For iOS app development, we typically use Objective-C, XCode, Swift, and iOS SDK, whereas for Android app creation, the tech stack includes Android SDK, Android Studio, and Java or Kotlin. Building a cross-platform app requires Flutter, React Native, Cordova, and Qt/Felgo.  

Step 7. Building an MVP 

By developing a Minimal Viable Product, you can assess whether your future app holds water business-wise since MVP development boils down to obtaining a fully functional version of the neobank. As a rule, it contains such primary features as sign-in, landing screen, account history, saving, and payments. The MVP is submitted for trial usage by the pilot audience, who then share their impressions of operating the product. 

Step 8. Coding 

This is the core stage of neobank app creation. It comprises backend development (data storage, authorization, API endpoints, etc.) and frontend development (authentication, data visualization, layout, and more). Each created functionality is tested to ensure its seamless operation. 

Step 9. Providing third-party integrations 

The APIs’ endpoints developed at the previous stage are connected with services and products of other vendors that neobank clients will use for a satisfactory user experience and cover all their needs. The reliability of every connection is then thoroughly checked.  

Step 10. Testing 

In fact, we repeatedly perform quality assurance of the product we are working on during the SDLC to detect errors and bugs as early as possible when fixing them isn’t that effort- and time-consuming. However, after the coding phase is over, we overhaul the entire solution once again, submitting it to multiple testing procedures, among which functional, performance, and security testing are crucial. 

Step 11. Launching the app 

This is not only about deployment. To maximize the outreach of the neobank app, we recommend its owner to mount a pre-launch campaign in social media and via influencer partnerships, perform app store optimization by including relevant images, keywords, and descriptions, and exercise post-launch monitoring to pinpoint and address usability or technical problems.  

Step 12. Maintenance and support 

DICEUS is a solid company that values its customers. That is why we stay with our clients after the project is completed as long as they need to monitor the app’s performance, fine-tune its operation, and guarantee its smooth functioning. Moreover, we keep in touch with them to provide assistance and advice, improve the original design, or upscale the app if necessary.  

Knowing how to start a neobank is only half the battle. To win the other half, you should hire a high-profile neobank development company that will implement the project you have in mind. But how can you find a reliable and competent IT vendor that will deliver a first-rate neobank app within time and budget? 

Essential tips on hiring best-in-class developers for neobank development

Throughout our 13+ years of presence in the software development market and cooperating with customers from various fields, DICEUS has learned the nitty-gritty of IT outsourcing in the banking industry. Here is a checklist of procedures that companies searching for a top-notch high-tech vendor must complete. 

• Understand your needs. You should have a clear vision of the project’s deliverables and the budget you can allocate to start a knowledgeable and focused headhunt. 
• Scan the market. You can do this by combing out top vendor rating resources (Clutch, Gartner, and Goodfirms are good examples of such platforms) and singling out organizations that have the highest indices, excellent reviews, and substantial expertise. 
• Study portfolios. When you have several candidates on your shortlist, visit their sites and examine the projects they have delivered for enterprises in your industry and niche. Besides, you should consider other mission-critical information about them, including personnel qualification and certification, the tech stack they are competent in using, their term of operation, pricing policies, engagement models, and the like. 
• Contact previous clients. Solid vendors place testimonials from ex-customers on their sites. Get in touch and interview them to discover their level of satisfaction with the cooperation, its result, the vendor’s collaboration style, and the post-launch partnership (if any). 
• Communicate with the vendor. With all the dossiers at your fingertips, you should arrange a session with the vendors’ representatives. During the interview, you can complete your opinion of your potential partner’s soft skills, ability to showcase their achievements, and general eagerness to cooperate with you. If the picture you receive is a satisfying one, start discussing the terms of the contract. 

As you can see, finding a skilled and trustworthy vendor is a time- and effort-draining endeavor. You can follow the roadmap we have charted and embark on a long search – or you can take a shortcut and choose DICEUS as your banking software development partner. Our specialists possess the necessary competence and experience to tackle a neobank app development project of any scope and complexity. Contact us to take the first step toward a sleek and smoothly functioning neobank app that will disrupt the market and direct a stream of revenues into your coffers. 

Summing it up

With the increase in our reliance on smartphones, the demand for digital bank services has grown exponentially. In the banking industry, the pioneering idea of neobanks is gaining universal traction, enabling people to obtain financial services from these digital-only institutions that don’t have physical branches and exist in the form of mobile banking apps.  

The nature of challenger banks explains their edge over classic financial establishments in many aspects, including high speed of operation, absence of red tape routine, 24/7 availability, and lower fees. Originally focusing on payments and money transfers, neobanks have gradually expanded the roster of capabilities. Today, they provide their clientele with business tools, investment options, foreign exchange functionality, cryptocurrency operations, access to third-party services, and more. 

If you want to launch and own neobank app, you should choose a relevant monetization model, follow a clear-cut SDLC, and hire high-profile IT experts who can build a first-rate product that won’t cost you an arm and a leg. 

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