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What does it take to set up one’s own neobank?

The Fintech industry is thriving as ever. Investments, cryptocurrencies, cashbacks and other similar notions have come into common use, and not only that of the millenials. But how much effort and money does one need to invest to establish and grow their own project? Let’s consider the case of neobanks which are the most vivid and frequent example of a Fintech startup.

All founders are aware that the main tasks include creating a team, getting a license and starting to code. It appears simple: IT professionals, lawyers, managers, a platform and enthusiastic owners believing in their brainchild…but no: the project has been launched but there are no clients.

Here are basic reasons why the project can fail to meet the expectations:


1. Early on, not every startuper perceives their future and understands the prerequisites to support the project. One of the segment’s strategies is to raise substantial investments in several rounds, improving the services and software to attract more users. But does everyone manage to keep investors interested from year to year? The answer is evident. For instance, regardless of its overwhelming success and a number of efficient investment phases, Revolut faced expenditure issues last year. Or take ZAbank: $193 million invested in its incorporation did not pay off notwithstanding the breathtaking growth and increasing popularity with users. Its founders managed to draft a 5-year plan for the recovery of investments. Having raised 650 million euro in 2020, Sweden’s KLARNA conducts an aggressive policy to popularize its services to secure the quickest possible return on investment, i.e. the founders are aware that this is a long-lasting game.


2. High software cost. Fintech means, above all, a software product with a budget sometimes exceeding $500,000. Therefore, not every startup is ready to incur such costs until the company becomes profitable.


3. Competition. The business project’s mechanism in this industry must be flexible in its response to current challenges and keep up with the trends, offering best conditions in the market and prioritizing the service; otherwise it is doomed to fail. This applies to everything associated with NFC, blockchain, cryptocurrencies etc.


4. Regulator compliance. Legislation is quite prescriptive and compliance therewith also requires significant expenses, e.g. state-of-the-art user retina identification or operations in keeping with financial monitoring regulations.


5. From firsthand experience at SBSB I can say there were two e-money licensing projects in a row in 2020-21 kept on ice due to internal founder contradictions. Even with the company already established and documents prepared, the project is put on hold because of personal innuendos at the beginning of partnership relations. So it is very important to choose partners knowingly, making sure you speak the same language and share business values and expectations.

Looking at the 2020 statistics, the UK issue 84 payment licenses, Lithuania – 23 licenses, Spain ranks third its 9 licenses . Germany аnd Sweden – fourth with 7 PIs.Estonia - came fifth in the rating with 3 licences. But we all know that the licenses issued do not mean the actual incorporation of 82 or 10 neobanks in a given country. Only few of them really win the recognition of consumers and achieve return on investment and profits.


So what is the catch? Why does someone hit the jackpot and others sink to the bottom?


Speaking frankly, a committed team, a well-thought-out business strategy, flexibility, clear product positioning and a fitting market are the key. All company members and founders have to keep up with the times and be ready to meet strong competition. Oleg Tinkov, Oleg Gorokhovskiy and Dmitriy Dubilet, Nikolay Storonskiy, Sebastian Siemiatkowski, Niklas Adalberth and many other Fintech startup founders are immersed in their projects daily. So you should think twice before starting a similar business of your own: it entails huge responsibility with little promise of returns for a number of years.

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