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How to launch a Neobank -
Everything You Should Know

What are neobanks? How finance system has changed?

This article is a kind of a spotlight which will help you to brush up everything you have ever known about
Neobanks.
Table of Contents

Idea of a Neobank.

Launching of this kind of a finance 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 a buzzword among all in 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.

In order 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?

When you look back on 10 years ago, could you even imagine, that you can do all your transactions
within visiting bank branches. Sounds incredible!

But nowadays it really possible with the help of neobank.
So, as far as you got to know this is the element of financial system, which works entirely online and
provide every customer with the number of financial solutions. You may make you 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 normal bank branch.

Payment card.

The ordinary bank provides you with a card or a checkbook. After making you own account, you should
wait a little time for you card production. You know, that in this period you are forbidden for making 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 you phone number in the real-
time! So that is called to be a user-friendly.
Besides, with the help of neobank you can make your budget only using your mobile phone.

What other advantages?

Another feature is instantaneous international payments. When you are going to travel abroad, what
you should care about? Your cash. Traditional branch bank can make you take 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 by eminent to pay with your own card. Sounds wired, if you know that neobank allows you
to transact internationally and your current will exchange 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 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 the 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 on neobanks is China. This country started 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 become 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:
How to develop a Neobank
How to develop a 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 had a wide experience of using digital payment systems, like Webmoney or Kiwi
wallet.

But only after Monobank running, 1,5 million consumers changed habitual bank system to virtual one
and invested over $230 mln. But cofounder Oleg Gorokhovsky tells, that 1,5 million of users is not a limit. The main aim is 5 mln satisfied clients. That's why they try to keep every for every time the basics of neobank:
Simple product with a friendly-user interface.

Well-motivated users (by the way the main motivate of monobank was 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 monoback gave back near $19 mln).
Flexibility for everyone.

Neobanks: pifalls

Revolut, N26, TransferWise, Monzo, Monese, Starling Bank, Curve and Tandem – all these neobanks provide 27 million people all over the world with finance services. According to Inteliace Research, analytics company, the number of neobanks user will increase up to 50 mln no later then 2021.

You see that is an example of a great success.

But, it's a fact that there are a range of neobanks couldn't survive. Only in 2019 there are 12 European countries, where neobanks were broken.

Why so?

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

Creating great UI / UX is basis of neobank launching. But marketing and advertising is also an essential and daring part of it. Most of 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 userfriendly interface, but you users will not explore it, because they don't used to have transactions via smartphones. Look deeply into your's target market requirements and only then start creating your neobank system.

The last but not the least reason of neobanks falling is dumping practice. You know, that virtual transactions 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 costumers prefer be more mobile and no longer
depend on certain bank branches. Well, nowadays you really may do 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 an authentication via sms or virtual messages and cut the
whole process of creating bank account with comprehension paper signing. And every card would be
deliver to costumers via mail or it can be only virtual.

This will make a target audience more wide and let neobanks gain new costumers in small town, where
traditional banks consider no reasonable 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, into 10 years mobile apps will be improved and
will let everyone to see what they will be buy definitely online. On the other side, this will allow bank
system to make a certain analysis of your money spending.
The article was written by:
CEO at 4ire Labs, Founder Nordic FinTech Innovation Network, connector between the startups and VCs in Scandinavian countries.
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