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How to Build a Digital Bank?


14 min read

What makes neobanks different from regular banks? What issues can you run into when you try to build a digital bank in the US? What are some of the best ways to make a good item? Let’s dive into the topic and discover those issues.

What Is a Neobank or Digital Bank?

Before you create a digital bank, let’s define what it means so you know what you’re looking for when you start designing your own.

Neobanks are fintech companies that offer traditional commercial banking services online. Still, they differ from conventional banks because they don’t have branches where customers can go and, more importantly, they don’t need to have standard banking licenses. Even though neobanks have only been around for a short time, they have already attracted a large number of customers.

The main difference between neobank and regular banks is that the customers don’t go to a neobank branch to open an account or get a loan. The only thing they need is a smartphone with the right app and identification of personality. This is where product development is valuable.

But there are also a number of other important differences:

  • Neobanks don’t offer a wide range of services at the start.
  • All of the regular banks are run by the Central Bank. On the other hand, both the CB and the Ministry of Finance watch over neobanks.
  • Traditional banks need full bank certification in order to work, while neobanks may only need payment or financial accreditation, depending on the services they offer and the region.

It’s interesting to see how fintech development ideas are being used in traditional banking. Neobanks don’t have physical locations, so they hire partner companies to set up ATMs or small representative offices. As more traditional banks go online and get involved in the digital world, the differences are getting smaller.

How Do Digital Banks Make Money?

According to Research and Markets, the worldwide neobanking market will expand at an annual growth rate of 47.1% between 2016 and 2026, reaching a value of $333.41 billion. Even though they are just starting out and don’t have well-established institutions or a lot of confidence yet, they expect to grow quickly in the near future.

There are many business models in fintech, and we’ve already described some of the most popular nowadays. Among them, there are a few specifically spread from which neobanks make money.

  • Interchange fee. A significant portion of a neobank’s revenue comes from the interchange fees paid by merchants when users use their debit cards to make purchases. Every time a Visa or Mastercard debit card is used to make a purchase, Visa adds a percentage fee to the total. In return, Visa sends a portion of the fees to a neobank.
  • Loans and overdrafts. In exchange for a fee on each purchase, they facilitate the use of credit cards. When customers go above their restrictions, they pay interest, which generates revenue for the company.
  • Additional accounts. Digital banks make money from the interest that tack on to new account balances is another source of revenue.
  • Withdrawal fee. Neobanks usually accrue interest on the ATM fees, which is another source of revenue.

How to Build a Neobank Step-By-Step

Let’s look more closely at each step in how to build a digital bank from scratch. Using what we’ve learned, we’ve put together a detailed guide that will walk you through all the steps.

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Key Features of Neobanks

Creating a platform for a neobank is more than just making a nice app for a smartphone. You will work on a number of important web apps. A modern neobank is made up of 40 different microservices, 5 different user interfaces, and multiple integrations with third-party services. In other words, you may easily build a custom user interface by piecing together preexisting components. The most basic of them are a know-your-customer feature, accounting, and card issuing and processing, which we’ve already discussed in this article.

For a competitive neobank, you should integrate user-friendly features:

  • Onboarding helps your users easily navigate the app, find features, execute transactions, etc.
  • Authorization enables users to access the bank or utilize its services. A user’s time spent creating an account or logging in should be minimal.
  • Know your customer system protects clients from scams, corruption, illegal gains, and funding for terrorism.
  • Personal account management lets users access their own account management controls, where they can change their profile and settings to fit their needs.
  • Customer support should be reachable to customers whenever they have a query or run across an issue. Messaging is a great solution.
  • Card issuing scheme may vary, such as by printing them off or using a virtual one, obtaining a unique BIN, or even sharing one. The provider should suit the region and terms, and have suitable price policies.
  • Transaction history helps to keep track of customers’ spending and ensure that their payments were processed successfully.
  • Internet limits allow customers to control the maximum amount they may commit to an online purchase and make informed decisions about their budgets.
  • Payment templates are a great way to streamline the user experience of your neobank.
  • Contact database synchronization enables the use of phone numbers instead of card information.
  • A notification and reminder system is a must to let customers know about things like account activity, payment receipts, and app updates.

If you want to build a neobank that stands out from the rest, you need to add some cutting-edge features. Even one or two of them may put your digital bank in the frontline. We’ve put together this list to help:

  • Cashback is a percentage of a customer’s purchases back. Typically, cash-back percentages vary across product categories.
  • The changeable CVV2 keeps balances safe if a customer loses their phone.
  • Cost tracking can show users where their money is going (e.g., food, home, study, etc.).
  • The referral system allows users to get rewards if they engage their family, friends, coworkers, and other people they know in the bank.
  • The accumulating system helps to collect money for certain goals. An amount of money is automatically taken out of a checking or savings account as a rest.
  • Stocks and cryptocurrencies are just two popular features nowadays.
  • Budgeting helps clients get their bills, groceries, and entertainment in line by letting them set a budget for how much they want to spend on each.

Marketing Research and Product Discovery

First, you need to look into the market and find out what is popular at all, which neobanks there are already. We suggest that you look at the pros and cons of other neobanks to figure out how you can improve your own.

Product discovery is the way to find out if you should make a new product at all and if people would use it. Here are the basic steps you need to take to find a product:

  • To understand your customers, you’ll need to find out what makes them tick and how they feel.
  • Use the different points of view of everyone on your team to learn as much as you can about your customer.
  • Listen to what the customer is saying. Before making a decision, it’s important to look at things from the customer’s point of view. There is a book by Rob Fitzpatrick that we think you’d like called The Mom Test: How to Talk to Customers and Learn If Your Business is a Good Idea when Everyone is Lying to You. It gives a good insight into when, what questions and why one should ask when doing business.
  • Use a mind map to get a better idea of what’s going on.
  • Get feedback from customers through all the ways they can get in touch with you (e.g., social media, email, customer service, user research, customer advisory board, etc.).
  • Don’t stop seeing things as they are. Do you have a bias that makes you question whether the suggested solutions are the right ones? Know that not every suggestion will be taken into account.

Most neobank users are between 25 and 44 years old, with 58% of male users and 42% of female users falling into this age range. The majority of the people in this group are from the UK and the European Union. In fact, 94% of all app downloads come from people in the European Union and the United Kingdom.

Getting License

To create a neobank, digital bank, or fintech business, you will need a license or to work as an EMD/PSD agent for an existing business that does have a license.

When planning the operations of your organization, you must first think about how the regulator sees things. For ease of use, many new businesses would rather use the e-money and payment licenses of a company that is already in business. There are many opportunities in the market that require newcomers to work and compete on their own.

The types of financial licenses are the following:

  • Brokerage license
  • Forex license
  • License for electronic money, aka EMI license
  • Investment license
  • Banking license

Normally, develop a neobank under the EMI license. Because an EMI is a different kind of financial service than a traditional bank, it is governed and regulated in a different way. In a nutshell, an Electronic Money Issuer (EMI) is a legal organization that is allowed to give out electronic currency. With this permission, EMI will be able to give out electronic money and offer the same services as other payment service providers.

There are a few very important things that the e-money license gives:

  • You may issue and distribute electronic money. Customers might keep their converted funds in their e-wallet, which is their online account, and use those funds for payments.
  • Customers can exchange currencies.
  • You may make direct debit or credit transfers.
  • Customers can transfer money or send it to other customers.
  • Customers can withdraw and deposit money.
  • You may provide account information to the clients.

What EMIs DON’T give is just as important:

  • Bank accounts (only e-wallets available).
  • Provide deposit guarantees.
  • International transactions.

Those functions need a banking license, which is harder to acquire.

Vendors That Fit Your Goals

Now that we’ve talked about the basics, we can move on to the most important questions that every business or organization needs to answer before choosing a SaaS vendor:

  1. Why did you need to use a service?
  2. Does the provider work with the infrastructure you already have and the infrastructure you plan to build?
  3. Can the vendor work in your regions?
  4. How does the provider help and support its customers?
  5. How well does the provider work together with other apps and services?
  6. What about the service level agreement (SLA) for the provider?
  7. What kind of IT support is needed to make sure that the service is always available and runs smoothly?
  8. How does the provider help with migration?
  9. What kind of safety nets do they have?
  10. How exactly do prices work?
  11. Is there a good balance between how mature the vendor is and how many features it has?
  12. How often does the provider add new features and updates, and where do the ideas come from?

Essentially, if you outsource development of your app, your developing partner can help you to find the best solutions regarding vendors.

There are a lot of reasons why a business might want to work with another business on software development while developing a neobank from scratch. You may choose among a variety of options: IT outsourcing, IT consulting, team augmentation, or in-house team.

  • The company doesn’t have enough resources to hire more skilled people.
  • Since the project will only last for a short time, the business is hesitant to hire developers full-time.
  • There might not be enough software engineers on staff who know enough about the needed technology to finish the project. A software development partner can make sure that the project will be done on time and on budget.

Prototype and Product Logic

Now you’re ready to start making your UX design. If you don’t have a good user experience design approach, it’s harder to make a user-friendly app for your target audience.

UX design. For a proper UX process, we recommend using design thinking, which will result in a finished product. These five simple steps should help you:

  1. Provide a detailed description of the product.
  2. Conduct user and market research.
  3. Analyze and create user personas and user stories.
  4. Create models and prototypes
  5. Put prototypes to the test and evaluate the results.

Testing. After the user experience design is done, you should test it. You should now have a good idea of whether or not the product makes sense, if it’s easy for customers to find what they’re looking for, if it works the way it’s supposed to, etc. The test results will tell you if the UX design needs to be changed.

UI design. To make your neobank app look good, make sure the user has a great interface. The goal of user interface design is to make interfaces that are both useful and nice to look at. User interface design is the process by which things like images, buttons, navigation bars, and footers are put together. All of these things may affect how interested the user is in the app. Because of this, you should give them a lot of thought.

Neobank Development Life Cycle

The next step is to turn the design into a finished, useful product. We broke up the whole digital banking development process into pieces that were easy to handle. Let’s take a closer look at each of them.

  • Product technical documentation. During this phase, the business analysis team finds out as much as it can about the customer to give a service or product that goes above and beyond what they expect. Developers choose a set of technologies and write up technical documentation. At this stage, the team should also figure out what features are needed (requirements for the admin panel) and what roles each user will play (admin and super admin). The team has to finish the estimate of costs and the to-do list.
  • Development. Developers of mobile apps use the design and documentation created in the previous steps to write the code for the app’s parts.
  • Testing. All of the code that is given is tested by QA engineers, and all of the parts that are made are tested by hand and automatically.
  • Deployment and integration. After the quality assurance team makes the software and tests it for bugs, the next step is to put it into production and make it work. In beta testing, people get to use a version of the product that has already been tested by professionals. The group takes into account what users say, works out all the bugs, and makes the necessary changes.
  • Maintenance. Once a product goes into production, it’s up to the team that made it to make sure everything runs smoothly. This means that any problems or requests for changes are taken care of by the development team.

Plan Marketing Campaign

Now is the time to show people what you have to offer. For a product to do well on the market, its launch needs to be well-planned and organized.

To finally launch a neobank, you need to do these last things:

  • research on your audience,
  • come up with creative ways to package your products,
  • come up with catchy slogans,
  • analyze your competitors,
  • welcome new customers,
  • build a landing,
  • and advertise.

Analyze User Feedback

The next step of neobank development is to ask the general public what they think of your neobank. A survey will help you figure out the following:

  • Is it easy to use neobank?
  • Do people have any problems when they use the product?
  • Does neobank do a good job of making its customers happy?
  • How can the product be improved by the people who will buy it?
  • How does the product give the customer what they want?

If you can answer these questions, you’ll know what needs to be added, taken away, or changed about the product.

Improve and Maintain

The process of making the product is still not over. Improve your product over and over again based on what your customers tell you and what your competitors do to overcome them. One must always keep going forward.

Our Experience in Neobank Development

If you ask us how long it takes to make a digital bank for the Western market, we’d say, about 9 months. Just that much it took us to develop the Dozens app. The most important things are the choices we’ve made and the responsibilities we’ve accepted.

Possible challenges faced by Neobanks

Neobanks often have to deal with the following three problems in order to make a profit:

  • Customers’ trust. It means a lot that customers like the ones above don’t want to use a neobank as their main financial institution. This makes it harder for neobanks to get and keep customers and to get more deposits and activity from consumers.
  • Well-known financial institutions are going digital, too. Traditional banking has recently started to put a lot of money into its IT infrastructure. This means that even the best business models for neobanks can’t compete with the big banks. After having to close a few branches because of COVID rules, banks are more determined than ever to win the race to become digital.
  • Possible moves into banking by Apple, Google, and other large tech companies. Apple is pretty much the same as a neobank when it comes to making payments. If this is true, it could be more dangerous for neobanks than for traditional banks.
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How Much Does Digital Bank Development Cost?

You can get a good idea of how much it will cost to make a neobank by thinking about the size and scope of the work, the chosen method, the technologies that will be needed, and the size of the team. The size of the team that makes a banking app also affects how much resources it needs. A company that makes mobile apps but doesn’t have enough people to do its work must hire more stuff.

The location of the company or individual developers has a big effect on how much a fintech development project will cost in the end. The price tag is based on the typical size and complexity of the product, the hourly rate of a team of 7–10 professionals (business analysts, project managers, developers, QA, and designers), and the 9–12 month time frame for making the app. So, the total cost is found by multiplying the weight of each part by itself.

The cost to build a digital bank in Eastern Europe may be low enough to attract companies from Western Europe and the US


Neobank may be a part of your business ecosystem. When we sum it up, we can see the most important things for the development of neobank. Find out as much as you can about your market and your competitors. Listen to what the audience is saying. You need to know about the possible problems and threats ahead of time.
Carefully choose a team to help you with the project, and stick with it. The information in this post should give you a place to start when making your own neobank. And don’t hesitate to reach out to us if you have any more questions or an idea for your own app.

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