How to Start a Bank from the Ground Up: Key Steps, Challenges, and Tips

The banking industry is one of the most profitable sectors in the world, with financial institutions generating billions in revenue through interest rates, fees, and investment returns. But what if you could tap into that profitability yourself? Starting your own bank offers unparalleled opportunities for growth, control, and long-term financial success. By understanding how to start a bank from the ground up, you can position yourself to benefit from the massive cash flow and economic influence that comes with owning a financial institution. In this article, we’ll walk you through the key steps, challenges, and strategies to turn this lucrative opportunity into a reality.

In this article, we’ll guide you through the essential steps to establish a bank in the UK, covering everything from regulatory requirements to funding and technology needs. With the rise of fintech and digital banking, now is the perfect time to learn how to open your own bank and position yourself in this high-profit industry. Ready to start your journey? Let’s dive in!

Criteria To Choose And Start Your Own Bank In The UK

What is the best bank in the UK? To find an answer to this question, it’s necessary to determine the filters that will allow you to estimate the bank’s performance and find out the moments to learn how to start your own online bank product. So, what are they?

To distill the best banks in the UK from the rest, Dashdevs recommends paying attention to the following top-5 check-up parameters:

1. Competency. Do you know how to get a banking license? Or do you have a full team of professionals aware of independent risk management? Maybe you have enough knowledge and experience to answer how to run a localized bank. Put these questions in the first place and then move to the next steps.
2. Variety of services. This determines the actual product value of the bank and its business strategy. For instance, if the newly fledgling bank offers too many functions from its birth, it should stir your suspicion about whether they’re all delivered at the best quality and whether the processes go smoothly. Be critical and find the middle ground!
3. Costs. The banks can differ immensely in this point: some offer free usage, others require monthly payments for a membership, or may charge the user for certain services or the full set of perks to use. Compare the rivals on the market and make implications only after this analysis!
4. Flexibility. That’s the degree of the bank’s adjustment to the current needs of users and the frequency of updates/changes made in its product and service offerings. Does it move with the times? How does it address the concerns of the target audience on a daily basis? Is it digital-friendly? Ponder upon these questions for a start.
5. Scope of marketing influence. Is the private bank purely localized and solely serving UK customers’ needs? Or does it give international users access to its services? Does the bank present multi-currency options for money transfers and other transactions? Here’s the list of things you probably need to mind in the first place while speaking about the character of services spreading.
6. Extra perks. This is all about which steps or initiatives a bank takes to conquer users’ trust and promote its brand. Which welcome bonuses does it offer for newcomers? How well does it work with customer retention? That’s part of its competitive advantage, so don’t ignore it while learning about certain things when starting UK bank.

You can also translate these criteria into the framework of business planning. What should your brand-new United Kingdom bank have at its disposal? Or how it should compete with the rest to win users’ attention? To lead you in the right direction, let’s move to Dashdevs’ prominent case to get inspired and have food for thought.

How To Establish a Bank: UK Guidelines

If your business is interested in creating UK bank, you need to go to the basics of the question and see how this industry works from the inside. And the first step is to distinguish the difference in ​​how to build your own bank in the UK in a traditional and digital UK bank.

Traditional Banks

As a rule, a person who needs to know how to make your own bank should learn what basic processes look like. The first thing in setting up a bank is identity verification, which presupposes filing such documents as a passport, identity card, or driving license.

The second one is address verification, which is already more complicated, especially if you’re not a UK citizen. Depending on the bank you choose, you need to collect a wider list of documents. On average, it includes a tenancy agreement or a mortgage statement, a new utility bill (no older than three months), an original copy of a recent bank/credit card statement (the same date of origin), and a council tax bill. Meanwhile, if you’re already scared of this bureaucracy, wait a second! Many physical banking institutions have become more flexible on this point. To prove your UK address, you can request a letter from your employer, job center, and educational institution.

Another alternative is to continue with the UK multi-currency account that frees you from the geo attachment and offline application. Are you already full of ideas on how to incorporate this knowledge and how to have your own bank? Would you like to make your customers go through a complicated approval process? Or, on the contrary, do you have a solution to facilitate it? If not yet, read on further!

Guide on Starting a Traditional Bank

Starting a traditional bank involves several critical steps, from understanding regulations to building a strong operational framework. Here’s a step-by-step guide to help you navigate the process effectively:

Step 1: Get Legal and Licensed

The foundation of starting a bank lies in securing the necessary licenses and ensuring regulatory compliance.

• Banking license: This is mandatory and allows your bank to accept deposits, provide loans, and offer other financial services.
• Financial services licenses: Depending on your jurisdiction, you may also need licenses for specific activities like investments, insurance, or specialized lending.
• Regulatory expertise: Hiring legal and compliance experts is vital to navigating the complexities of local and international banking regulations. They will ensure your bank operates within the law and meets all reporting and operational standards.

Step 2: Plan Your Location

Selecting the right location is crucial for visibility and accessibility.

• Strategic placement: Research high-traffic areas with a target customer base. Your location should align with your business goals, whether focused on retail banking or niche financial services.
• Leasing and zoning compliance: Negotiate favorable lease terms and ensure the property meets all zoning regulations for banking operations.
• Branch design: Invest in designing customer-friendly and secure branches that reflect your brand’s professionalism and trustworthiness.

Step 3: Build Your Team

Your team is the backbone of your bank, and hiring the right talent is essential.

• Core banking professionals: Recruit experienced bankers, financial analysts, and relationship managers to deliver top-notch financial services.
• Compliance and risk management: Ensure your team includes compliance officers who can monitor regulatory adherence and mitigate risks effectively.
• Customer support: Hire customer service representatives trained to provide exceptional support, reinforcing trust and loyalty among your clients.

Digital-Only Banks

That’s a perfect painkiller! Imagine that instead of collecting and providing the necessary package of documents at the physical branch of the bank, the user just needs to spend a couple of minutes coping with the virtual opening of an account.

The majority of neobanks don’t demand any specific documentation at all, letting the newbie rapidly go with the online or in-app verification through photographed copies of the ID and immediate selfie function. In terms of basic data, the new user is usually asked to provide a full name, date of birth, phone number, email, and address (geolocation doesn’t create any hurdle here).

In some cases, fingerprint or face recognition can also be an optional part of ID verification, but this matters only for the use of advanced financial tools and the increase of user security standards.

So, as you can see, opening a banking account in the UK digital bank is much simpler both as a customer journey and as a financial solution. And what’s more, you’ll be able to attract a wider target audience as your users shouldn’t be obligatorily living or located in the UK. The rest is entirely up to the types of accounts (in other words, the range of services) and business goals your digital bank will be aspiring to reach.

Guide on Starting a Digital Bank

Launching a digital bank offers a unique opportunity to innovate and redefine customer experiences in the financial sector. With the right strategy, technology, and compliance measures, you can create a seamless, customer-centric platform that operates entirely online. Here’s how to get started:

Step 1: Get Licenses

Get the licenses needed to run a digital bank. Work closely with legal experts who know fintech rules to handle the complexities of digital banking.

• Digital banking license: A specialized license permitting the operation of a digital-only banking platform.
• Fintech license: A license tailored explicitly for financial technology (fintech) operations may sometimes be required.
• Electronic Money Institution (EMI) License: This license is necessary if the digital bank provides electronic money services, such as digital wallets or prepaid cards.
• Payment Institution (PI) License: A payment institution license may be required if the digital bank facilitates payment services.

Step 2: Recruit Tech Pros

Hire skilled experts in software development, cybersecurity, and data analytics. As the CEO of a fintech software development agency, I stress the importance of creating a secure, user-friendly, and innovative digital banking platform.

Step 3: Tech Up Your Bank

Add advanced tech to your digital banking platform, like fingerprint and face recognition, for secure logins. Use KYC solutions to speed up customer onboarding and follow the rules by partnering with reliable vendors to save time and money. You don’t have to develop each feature from scratch, as many vendors propose ready-to-use solutions. It’s one of the best choices since our clients, after integrating with different digital vendors, sped up their time-to-market and saved on costs. It will help make your digital bank stand out with top-notch security and a tech-savvy experience.

To align the digital bank with specific business goals, incorporate fintech architecture, a strategic plan aligning technology with business goals. Careful planning of the architecture guarantees the presence of essential components, functionalities, and integrations necessary for optimal performance. 

While launching a product without prior architectural development is feasible for less complex products, it is crucial for complex ones like fintech. Given the intricacies of financial operations, data processing, and compliance requirements, fintech architecture is indispensable to enhance the product’s value and quality.

Consider using AI (Artificial Intelligence) and ML (Machine Learning) solutions as well. These technologies can serve as smart tools that help your digital bank respond better and assist users with their queries, improving your services.

Step 4: Develop Software Smartly

Use flexible and intelligent methods for software development. Make sure your digital banking system can adapt to market changes. This step is vital to maintaining a lively and responsive digital banking setup.

Step 4: Ensure Software Quality with QA Testing

Before launching, undergo thorough Quality Assurance (QA) testing. Test for functionality, security, usability, and performance to ensure your digital banking system meets high standards. QA testing helps identify and rectify potential issues before reaching the market and provides a smooth and reliable user experience.

Bank Account Types In The UK

This information will be valuable to you in both scenarios if you just want to open a bank account or if you want to set up your own bank. Depending on your needs, the major types of bank accounts that are typical of the UK include the following selection:

• Basic account. It’s suitable for users with a poor credit history or experiencing difficulties in opening a current account. The basic account is usually limited to the essential banking features connected with payments, and you don’t normally have an option for overdrafts, loans, or credit cards. However, after using the basic account, the trust in the user’s solvency (restored/acquired) can allow them to apply for the current account.
• Current account. That’s the most widely used type of UK bank account — debit cards with the additional credit offer — that covers users’ daily needs, such as wage/scholarship receiving, online purchases, and bill payments. Though it’s more convenient for groups, individual current accounts are also a frequent phenomenon, and the free or low-cost price for their opening is a significant advantage.
• Savings account. It generally evokes interest from users unsatisfied with the basic savings and investment functions that the average bank presents and is striving for more. In this case, the higher interest rate is the perk that makes an appeal and drives users’ loyalty.
• Business account. You’re to inform the bank about your business address, company’s registration number, approximate annual turnover, and contact details, and you’re ready to apply for the UK business bank account. Besides, mentioning foreign shareholders is another obligatory requirement for UK applicants. What will the business account bring for you? An appointed bank representative to address your questions, low monthly maintenance fees (£5-£10 on average), free trial account test, online/mobile accounting, overdrafts, and many other functions (depending on the bank chosen).

There’s also a list of the narrower bank accounts for the specific category of users:

• Offshore account. If your first association is ‘something illegal,’ it’s time to challenge the meaning of this concept. The offshore account is targeted at serving the needs of ex-pats living or working overseas, and its core gist is convenient finance management in different currencies, which gains more power in case of attractive tax conditions.
• Non-resident account. It’s based on the same principle of operation but the reverse target audience — international users lured by the UK banking proposals. The ones for whom the address verification is the deal can benefit from this option.
• Joint account. Here’s the best option for sharing payments, savings, and other financial procedures with other people: spouses, family members, co-tenants, etc.

In this light, as a business owner, you’d better build your small localized bank in the UK with a narrow scope of features, as supporting all the account types for a fintech startup isn’t the smart approach, indeed. Start with a little and grow gradually by adding some more!

Banks In The UK: Learn From DashDevs

If you google the best UK banks in 2023, you’ll primarily come across the following names:

• HSBC — the largest European bank in terms of market capitalization, which stems from its active representation in 64 countries;
• Barclays — a perspective UK-based bank notable for a wide range of financial services and an attractive business account offer for start-ups;
• NatWest — has around 19 million customers and over 700 locations in the United Kingdom. It provides a strong package and may appeal to ex-pats with low earnings or smaller down payments;
• Barclays — a corporation with approximately 48 million customers and 1,600 branches in the United Kingdom. The bank provides fixed-term and instant-access savings accounts in pounds, euros, and dollars;
• Lloyds — is one of the UK’s oldest operating banks. It has provided banking and financial services to people and companies in the United Kingdom and worldwide since 1695.

When exploring the top digital banks, here are some noteworthy names:

• **Revolut **— Revolut is among Europe’s largest ones, offering personal and business accounts with 30+ currencies and integrated investment solutions.
• Monzo Bank — Monzo Bank was established in 2015, Monzo is a regulated online-only bank, providing various account types, including free accounts, with features like interest-bearing deposits and mobile app accessibility.
• Wise — Wise was founded in 2011, this is a digital bank specializing in cost-effective international transfers, offering a free multi-currency account and support for transfers in 80 countries.
• Starling Bank — Starling Bank has been one of the UK’s largest digital banks, providing individual and business accounts with a single tariff and minimal additional charges.
• Curve Bank — Curve Bank offers a smart card and app that allows users to manage multiple accounts and transactions within one application.

Meanwhile, the Dashdevs company has its own case to be proud of — the Dozens app — a digital-only bank crafted within nine months through a comprehensive software development process — the company’s achievements don’t end there. 

A year after the Dozens app’s initial release, we have disrupted the UK banking-as-a-service market with the launch of Pi1 — a robust BaaS platform currently powering Dozens and enabling banks and fintech startups to create their unique financial solutions. The DashDevs team played a crucial role in the technical implementation of this product.

Pi1 offers a remarkable advantage, significantly reducing time-to-market and resources required for system modernization or new builds. This allows companies to focus on creating customer value and raising capital. Unlike some other banking-as-a-service solutions, Pi1 doesn’t just cover functional aspects but also delves into marketing. It features a cutting-edge analytics system enabling firms to monitor the entire customer journey — from ad and onboarding to actual use. 

To Conclude

Starting your own bank in the UK is a challenging yet highly rewarding endeavor. It requires substantial financial investment and careful planning to meet regulatory, licensing, and infrastructure requirements. Understanding the costs and steps involved is crucial, as opening a bank involves navigating complex compliance frameworks and building a secure, customer-centric platform.

This is where DashDevs excels as your ideal partner. With extensive experience in fintech and a deep understanding of the UK’s banking landscape, DashDevs provides end-to-end support for launching your private bank. From creating cutting-edge digital banking solutions to guiding you through regulatory hurdles, we ensure your journey is seamless and efficient.

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