How to Launch a Neobank?

By Fire Labs Team | Jul 07, 2020

Launching this kind of financial system is not really complicated. But first of all, one should get to know the fundamental basics of Neobanking.

It had really become a kind of buzzword among all in the fintech community. And it was quite natural because this topic has become the most popular in the media. Why so? The answer is simple and unambiguous.

To understand when such a phenomenon first appeared, one should go back 12 years when the whole world stirred up the 2008 crisis. As if by the domino principle, he launched a series of bank mergers. And so, already in 2017 in Ukraine, there was a conversation about the possibility of creating banks without physical branches or, in other words, non-banks.

Not only the crisis but also the mobilization of the population contributed to the emergence of innovative solutions. This phenomenon begins in the United States, where the proportion of customers who used mobile devices for banking operations grew by almost half. The peak falls from 2011 to 2014 from almost 22% to 39%.

What is neobank?

Ten years ago, could you even imagine, that you would make all your transactions without visiting bank branches? Sounds incredible!

Nowadays, it became possible with the help of a neobank.

So, neobank is the element of the financial system, which works entirely online and provides every customer with a number of financial solutions. You may make your normal payment via virtual or real card, do money transfers and even go into personal debits.

But the main feature is that neobanks are really flexible and user friendly.

Let's compare them with the normal bank branch.

Payment card.

The ordinary bank provides you with a card or a checkbook. After making your own account, you should wait a little time for your card production. You know, that in this period you are forbidden to make any transactions.

In this case, neobanks are more flexible. Due to the feature of virtual payments, you can wait no more time for making your personal card. You cannot even lose it!

By the way, in the neobanks system, you can make payments using only your phone number in the real-time! So that is called to be user-friendly.

Besides, with the help of neobank you can manage your budget only using your mobile phone.

What other advantages?

Another feature is instantaneous international payments. When you are going to travel abroad, what should you care about? Your cash. Traditional branch bank makes you send a request, tell them the whole trip route with all the details of which countries you will visit. Finally, after several days you will be allowed to pay with your own card. Sounds wired, if you know that neobank allows you to transact internationally and your currency will be exchanged at the moment.

Why Neobanks are gaining ground?

Neobanks rising and it's a fact. From the early 2000 digital payments are embraced at such a large scale.

Ukrainian customers start quitting bank branches and using online wallets in the middle of the 2010s.

Nowadays more and more people are getting comfortable making online payments through Google Pay,

Paytm, PhonePe, and more, now more than ever. And neobanks got real fame in the United Kindom.

The temp of their growth is really impressive. Only last year (2019) there were more than 8 million users.

The most popular digital banks in the UK are:

• Revolut – 8 million users + 166.67%

• Monese – 1.4 million, +100%

• Monzo – 3 million, +50%

But the real leader of neobanks is China. This country started to provide web financial services in 2004, but in 2014 "Alipay" was established and they needed only one year to gain 450 million users, who make payments and insurance management.

How to develop a Neobank?

If you want to create a Neobank, you need a team of experts who will work on the project. Neobanks are becoming more and more popular nowadays, thus lots of companies are interested in the development of their own solution.

You may face different challenges when you start Neobank development. At first, you should define your target, as it will be the most important step before starting the research of the economy of the region. Targeting various consumer segments may cause a low-interest rate of your offerings to some customers.

It's also important to research and analyze banking API capabilities before choosing a partner. Another side that should be in the company's focus is regulatory challenges. Some regions have a very restrictive and rigid regulatory environment, thus it's important to choose a conductive region.

Although there are lots of details that you should keep in mind, Neobank will be a future of payments. Our experts can help you with the architecture vision of the development process.

Here's an example of a high-level architecture for Neobank development:

architecture for neobank

And what about Ukraine?

In spite of the fact, that we consider Monobank to be the first official web-banking system in the country, Ukrainians have had a wide experience of using digital payment systems, like Webmoney or Kiwi wallet.

But only after Monobank running, 1,5 million consumers changed the habitual bank system to a virtual one and invested over $230 million. But co-founder Oleg Gorokhovsky tells, that 1,5 million users are not a limit. The main aim is 5 million satisfied clients. That's why they try to keep to the basics of neobank:

  • Simple product with a user-friendly interface.
  • Well-motivated users (by the way the main motivate of monobank was the cash-back system. Every month all users are allowed to take a couple of categories for cash-back payment and get 1% or 2% after every purchasing. In 2019 monobank gave back near $19 million.
  • Flexibility for everyone.

Neobanks: pitfalls

RevolutN26TransferWiseMonzoMoneseStarling BankCurve, and Tandem – all these neobanks provide 27 million people all over the world with financial services. According to Inteliace Research, an analytics company, the number of neobanks users will increase by up to 50 million by 2021.

You see that it is an example of a great success.

But, it's a fact that there is a range of neobanks that didn't manage to survive. Only in 2019, a number of neobanks went bankrupt in 12 European countries.

Why so?

There are 3 most popular reasons. And the most popular – wrong financial project planning.

Creating great UI / UX is the basis of the neobank launching. But marketing and advertising is also an essential and daring part of it. Most owners don't take into account half of the actual costs. So, you see the lack of marketing budget every time goes before the fall.

Target market awareness is the next reason. You may create the most user-friendly interface, but your users will not explore it, because they don't use to have transactions via smartphones. Look deeply into your's target market requirements and only then start creating your neobank system.

Last but not the least reason for neobanks falling is dumping practice. You know that virtual transactions are more profitable: with a minimum commission or without it at all. Many start-ups owners strongly believe that it's a point for success. But, in fact, dumping makes more damage.

Future of Neobanks.

Today's cyber technologies increase very fast and customers prefer to be more mobile and no longer depend on certain bank branches. Well, nowadays you can make nearly every transaction in two

clicks anywhere. Even payment via mobile phone is not a breathtaking technology now.

What will become popular in the upcoming 10 years in Ukraine?

Analytics predict that neobanks will remote authentication via SMS or virtual messages and cut the whole process of creating a bank account with comprehension paper signing. Every card will be delivered to customers via mail or it can be only virtual.

This will make a target audience wider and let neobanks gain new customers in a small town, where traditional banks consider no reason to open new kinds of branches.

The next thing, which will be improved – electronic checks of goods. Now you may return staff to the salesmen only if you have a printed check. But they say, in 10 years mobile apps will improve and will let everyone see what they buy online. On the other side, this will allow the bank system to make a certain analysis of your money spending.

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