Blog article
See all stories »

A Step-by-Step Guide on How to Create a Neobank

As more customers shift from conventional financial institutions to online-first sites, neobanks are becoming increasingly popular. Customers can now easily access their accounts and transact on the go with the neobank development.

Besides making it easier for customers to transact, this software also offers insurance products, foreign exchange, and investment services. That indicates that neobanks are here to stay, with better things to come, as we anticipate more technological advancements. 

This step-by-step guide will walk you through how to create a neobank from scratch. But first, let's begin by explaining what a neobank is, its workflow, and some trends you should be aware of to succeed. 

What is a Neobank, and how does it work?
A neobank is an advanced type of digital banking software operating under a simplified and unique approach to offering financial services to customers. Compared to conventional banks, neobanks are more transparent, specializing in specific financial products like savings or checking accounts.  

The workflow of a neo-digital bank depends on who it focuses on. For the end user, opening a neobank account is relatively simple; just log onto the bank’s site, open an account, and transfer cash into the newly created account. 

On the back end, a neo-digital bank operates entirely online, saving owners cash on equipment, rent, and personnel. This allows organizations to offer competitive rates and eliminate or reduce membership charges. 

Trends of Neobanks in 2022-25
Now that you understand what a neobank is and its workflow, let's overview some exciting trends anticipated between 2022 to 2025. 

1. Universal technology stack
With technological advancements, more customers are expected to switch to digital banks and have a better banking experience. And because we're in a competitive world, we expect to see major banks develop their neobank platforms.

Neobanks gravitate towards mobile technologies like Android and IOS, and most companies are likely to veer towards cross-platform neobank development.    

2. Transparent financial services
Neobanks work transparently and strive to give their customers real-time transaction details. These platforms aim to keep their customers adequately informed, from opening a new account to trading and wealth management services. Sharing this information is easier for a digital bank since it collects all data in real time.    

3. Improved cybersecurity in financial institutions
Cybersecurity will be built on Artificial intelligence threat detection, security vulnerabilities, and projected company-wide analytics by 2030. AI will configure a digital bank’s internet security system and shape it synchronal, making it challenging for hackers to exploit vulnerabilities. 

4. Application of innovative technologies
AI, ML, and Big Data technologies will allow financial institutions to shift from offering standard financial services to a more proactive role of facilitating your needs. Neobanks will be able to push customers to perform actions that will yield positive financial results.  

Must-Have Features of Neobanks
Knowing some of the essential features of your neobank software is as important as introducing the trends, so let's go over them now.

1. Instant money transfer
Instant cash transfers or peer-to-peer transactions have recently gained popularity due to their convenience — allowing customers to send and receive cash immediately. In other words, users don't experience delays when making cash transfers, so they can start using their money right away once it reflects in their accounts. 

2. Splitting bills with friends
You must focus on budgeting tools to create a neobank that appeals to younger customers. And one of the best budget tools you should invest in is "splitting bills," which allows users to split bills with friends. Users must calculate the sum and indicate the number of individuals they want to break the bill.  

3. Mobile banking app
As you plan to start a neobank, you must focus on enhancing your customers' needs by creating a mobile banking application that allows them to access their account details remotely. In addition, you'll need to ensure that the app is layered with good security features, is easy to navigate, and has a user-friendly interface. 

4. Cashback
Incentivizing your product is an excellent tactic when building a digital bank. And one of the best ways to do this is to integrate the cashback feature into your platform, which returns a specific percentage of money spent on goods or services in partner organizations.

As you work to develop a neobank from scratch, make your application open to external partners while ensuring security and your core functionality is maintained. 

5. Foreign exchange access
Integrating foreign exchange access into your neobank software can help appeal to more customers as you’ll make cross-border banking better, faster, and smarter. You can provide your users with cross-border banking services through the web, giving your customers access to the multi-currency exchange. 
 

How to Create a Neobank From Scratch
When you want to develop a neobank from scratch, the best option is to partner with a reliable development company like 42Flows that can guarantee your application’s security, stability, and efficiency. 

That said, here’s how you can start a neobank from scratch: 

Step 1: Build neobank's core
Banking systems are no longer a monolith rather a collection of best of breed tools that suits your needs. This can include 

  • Core banking systems 

  • Customer experience management, chat, support and marketing 

  • Financial accounting and reconciliation 

  • Security and monitoring 

  • And many api applications including card processing, payments, remittance etc. 

Core to this is a good API strategy that will connect your app with services like authentication, message queues and data management. 

Step 2: Front-end development
Once you’ve built the back-end, you need to develop a customer-centric front-end which is an indispensable part of creating a user-friendly neo-banking site. 

Design an immersive user experience for a particular user group and test it to ensure it aligns with your target customers. 

A standard neo-banking application should offer the following features to help its clients manage their funds: 

  • Accounts

  • Payments

  • Credit/debit cards

  • Budgeting

  • Transactions history

  • Child accounts

  • Investing options

  • Notifications

  • Real-time chat customer support

It’s better to create these features from scratch, as components from third-party services may have malware or, even worse, may fail. 

Step 3: Secure your solution
Security is essential when you start a neobank, as the entire business is centered on trust.

From a license and compliance perspective you will no doubt create a SOC (Security Office Center) and appoint a CISO that’ll act as a command center to assess all information your neobank’s infrastructure produces. 

Key areas of concern will be authentication, logging and monitoring, anomaly detection covered by Security Information and Event Management(SIEM). We use many (open source) tools to assist us with our journey especially Elastic.co  

Increasing AI and  ML algorithms are being used to identify patterns that may interest your security team. You can also set up security groups and volumetric control to catch problems at the protocol level. 

Step 4: Prototype (MVP) your future neo-banking platform
Building a neobank that meets you and your customer expectations is truly challenging. It pays to prototype and create incremental MVPs. 

We typically start with an MVP of the platform’s primary features like sign-up, KYC, the home page or landing screen, account history, payments and saving. 

This way, you’ll be able to test your product to determine if its logic is implemented correctly and assess how users interact with the product. This process also allows you to understand if there are any gaps in your product so that you can improve them.

Step 5: Test the software
All of this hard work can be ruined by a bad user experience and a bad app review. At the current rate of change we recommend automated tests made possible through experiment-oriented development. This starts with determining all use cases that can come up as the customer interacts with your application.  

Manual testing can’t allow you to identify and rectify all issues. Therefore, you should work with a professional engineering team to help write codes and conduct automated tests on the system, such as: 

  • Integration tests

  • Penetration tests

  • Security tests

  • Regression tests

  • User acceptance test

  • Unit tests

Step 6: Deploy the neobank - DevOps 
A successful neobank platform undergoes constant updating making DevOps an integral part of deploying a neobank platform online. DevOps is often the oil that helps the whole delivery process flow. It  consists of applying the best tools and practices that result in faster and secure deployments of new software versions to the public.

Setting up and running a neobank platform requires hands-on and problem-solving solutions centered toward your target audience. Currently, many companies are solving existing issues and offering new players a chance to launch in the neobank sector.

6538

Comments: (0)

Maksym Popov

Maksym Popov

COO

42flows.tech

Member since

30 Nov 2022

Location

Tallin

Blog posts

7

This post is from a series of posts in the group:

Fintech

Fintech discussions and conversations around the development of fintech.


See all

Now hiring