A lot of traditional banks are brick-and-mortar and their services are more expensive and attract customers less. This is why the need for neoBanks comes into play. If you’re one of the people who consider, “Why not build a new bank that uses top-notch technologies to offer digital-only banking services?” This article is perfect for you.
The explosion in fintech financing has seen massive amounts of money flow into what is referred to as neoBanks. These are digital banks that offer banking services using the most innovative techniques.
NeoBank is a natural step in the development of financial institutions. It came into existence in response to the desire to streamline services to the maximum extent possible and to reduce the number of interactions with bank staff. It is, in essence, an opposition to misplaced scale and a focus on marketing.
Every country today with the normal advancement of electronic technology is home to at minimum one Neobank. This means that despite the ease and efficiency of the process the neo-banking market isn’t over-saturated. And the earlier you can try something similar and the greater chance you’ll have of obtaining an original product that will be a huge hit with customers.
Do not forget that neo bank isn’t only an app on your phone, but an entire set of services that require the highest security, an organized technical infrastructure as well as the best quality of user-friendliness. Furthermore, it requires a top development team as well as a substantial investment to make the result worth the effort.
What is Neobank and its Workflow?
Neobank is a fintech digital institution that offers standard banking services (loans, savings and investments accounts, and credit cards) but is not an actual bank legally (no licensing for banking). Neobank has no physical office and almost none of the cash machines since every issue is solved by the use of a mobile application. The basic idea behind offering financial services through the digital format was designed to anticipate the needs and demands of the user and resolve them in just only a few clicks and without lengthy and tiring phone calls or – perhaps even more important – not having to wait in lines to see a “live” consultant.
The most well-known examples of Neobanks comprise U.S.-based Chime and UK-based Revolut. In addition, Chime is the largest of the two. The U.S. and UK are the top two countries in this field based on the number of transactions.
The market size in 2021 was estimated to be approximately $47 billion. This market is projected to expand by an average rate per year of 53.4 percent until 2030 to increase to $2.05 trillion. The cost of transactions per customer in the neobanking sector will be $18.21 thousand by 2022.
The past five years have seen the most rapid growth of alternative banking services. The main reason behind this is the increasing discontent of customers with the difficulties of traditional banking that resulted in a hunt for simpler and less costly options.
What is a NeoBank in 2023?
There’s a belief that neobank is only available to those who are young and have a basic understanding of digital however this is not the case. The truth is that Neobank’s clients are males (58 percent) as well as women (42 percent) aged between 25 and 44. The EU, Britain, and the U.S. are at the top of the list of downloads. But, a growing percentage of the population 65 and over are enjoying the benefits of digitalization.
To attract customers, Neobanks adopt a more friendly manner or what is known as “new sincerity”. Customer service can communicate with you like a long-time companion, not as an insincere, polite conversation. The application is designed to allow you to find every option within only a few clicks even if you don’t have a clue as to the location. There are gamification features with no commissions, low interest, and favorable cashback. All of these will encourage customers to make use of neobank to the maximum extent feasible. This kind of environment is achieved by reducing the cost of infrastructure for projects.
Why Should You Start NeoBank in 2023?
NeoBanking is a project with advantages that make it feasible and repaid in an extremely short time frame:
- A niche that isn’t full
- Attractiveness for clients thanks to easy communications
- Flexible compared to traditional banks.
- A high investment appeal
You can build your neobank completely from the ground up or utilize a pre-made solution that has more options and capabilities that make you stand out from the other rivals. Neobank software allows you to incorporate and enhance features much faster than traditional software. Neobanks are based on advanced processes automated, internet services, and APIs, to provide customers and banks with high profits security, flexibility, and security.
It is also possible to create an entity that is a subsidiary of a traditional bank, however, there are some distinctions.
What’s the Difference Between Neobanks and Traditional Banks?
It is essential to differentiate between traditional banks that offer online banking services as well as Neobanks. As we’ve already said that neo banks don’t have offline divisions because their working principle is in place, and they don’t need them.
Legally, the authority for traditional banks would be The Central Bank, but for Neobanks, there are two regulators which are the Ministry of Finance and the Central Bank. In addition, conventional credit institutions are only able to operate with full bank accreditation, and a neobank can possess both financial and payment accreditation, based on the service offered.
There is a need to differentiate between neo-banking and online banking. In the case of the former instance, the mobile app is the only form of existence, then the latter is an “avatar” of a traditional bank, which is seeking to be more user-friendly and accessible. Neobanks serve the same purpose as traditional banks, however, the big financial institutions do not provide them in the same manner as traditional as well as digital banking. They are instead, mostly, founded by private entities and operate on an exclusive online model.
Traditional banks are now going online, however, it is possible to say that the distinction between the two kinds of banking services is becoming blurred. Traditional banks’ representatives know they must keep up with technology to keep their clients. However, rapid change is typically impossible due to the ever-growing gap between their current levels of technology as well as their vast corporate systems.
One option is to establish an exclusive neoBank where the parent bank is responsible for the regulatory requirements and environment. On the other part, the parent company assumes the risk that is not present in the parent however, on the other side, the subsidiary can offer a wider range of lending and banking services like auto loans, mortgages, and so on. In this manner, you can open your neobank to your existing customers.
In the event of a need for an alternative, IT giants, that do not have any direct connection in the financial sector, may create their own Neobank. It is among the top well-known Neobanks in China Alibaba’s MYBank has a client base of 35 million customers as well as small and medium-sized enterprises. It is a specialist in small-scale credit and personal services.
Creating Neobank by Scratch
Like any other financial product making a neobank, it is important, to begin with, careful planning and following the procedures which are appropriate to create every result.
- A well-thought-out idea that can be developed into a business concept
- Market analysis and competition
- Analyzing the target audience
- Employing a team of experienced developers and managers
- MVP development (from UX Design prototypes to testing and deployment)
- Gathering feedback
- Learn from your mistakes and get help
If you’ve got an idea at the present you can contact iTechnolabs company, which will assist you with analyzing the market, and then hire an outsourcing company that is competent to develop a product that can be paid for within a short period.
Neobank Software Development: How To Create A Neobank
It is crucial to pay attention to essential details, as without these it’s impossible to build an environmentally sustainable product.
Every country has its unique aspects of laws governing the regulation of Neobanking. So, before you begin applying the concept it is important to be aware of all aspects related to banking licenses, for instance.
A financial product does not just with personal information and the money associated with it. The first concern is to ensure the proper level of security to avoid security breaches like the use of two-factor or multi-factor authentication.
3. Fast payments
Because the main use of Neobank is via a mobile app, payments are just a few clicks away for the best convenience, and without the need to fill in several boxes.
To allow the payment gateway described above to function effectively it is necessary to integrate with the most well-known payment systems that are available in the region. But, don’t forget about security when you incorporate the system you are using into your application, you should take into consideration the risk that it could be compromised or your customers’ information could be sold to criminals. It is therefore beneficial if you choose carefully when selecting the partners.
There’s no need to reiterate the importance of a good user experience where this is the primary aspect of the application in which it is presented. This includes everything from lightning-fast account creation and rapid receipt of credit cards to customized banking services (the possibility to purchase shares and cryptocurrency invest in, as well as accept short-term and long-term loans). All this without fees or commissions, and with no hidden charges.
The most important features to have for neobank
What features should you include in your app to attract users?
- Cashback (a great little gift to spend, not just on yourself however, it also allows you to give an amount to charity at the end of the month this can be a powerful motivational tool)
- Dynamic CVV2 (as an option to safeguard your financial assets) Savings reports and expense reports about targets (here, neobank takes over the role in the application for finance helping users keep the track of their balance)
- Referral program (one method to attract new users by attracting existing users)
- Cryptocurrency (a chance to connect your cryptocurrency wallet to the application or even create a wallet here)
- Paying bills (utility bills, apartment rent, car insurance – all of these can be paid with a single click, or you can set up automatic monthly/weekly/annual payments).
Is Neobanks profitable?
In the year 2020, there were over 300 neoBanks were established around the globe. Statista estimates that in 2026, the number of customers will reach 347.21 million which is 4.4 percent. In other words, as you can observe that the market is still far from being saturated and the growth potential is great.
By 2024, there would be 47.5 million digital-only bank account owners across the U.S., a 19.8 percent increase over the year 2020, and the penetration of digital banks across the U.S. will increase by 8.9 percent from 2020 until 2024.
Furthermore, many populations are not yet being reached. For instance, Neobanks tend to target youngsters who are highly connected to devices. However, what is it with teens? They’re also adept with any application in just a few minutes, however, their participation in the field of Neobanking is limited.
Selecting the neobank business model
If Neobanks are so lucrative for their customers, how can they earn profits? Don’t be shocked, however, one source of revenue commissions. In the eyes of the individual, they are virtually absent, and there’s no deceit here. Neobanks are a part of interbank commissions but their procedures are more complex and difficult to comprehend for customers.
Neobanks has also introduced premium accounts for customers who require more convenience that range from medical insurance via two clicks and a VIP card. In addition, premiums may be offered on different levels as well.
Because of advantageous terms and conditions, loans at Neobanks are easier to obtain than conventional ones. Additionally, the rates are higher, so the number of lenders is growing quickly. But there are also risks due to insecure clients.
How Much Does It Cost to Build a Neobank?
If we’re discussing the base version of neobank, its creation is dependent on the features, which will range from $300 to 500 million. If you have a larger budget, it is possible to discuss other possibilities. Be aware that, in general, the work can take around six months to finish. But, you can accelerate the process in case you want or have the necessary resources. For instance, if you decide to create an outside-the-box solution.
As a complement, you should focus on marketing efforts that will attract customers. Be sure to appeal throughout. Be aware that the success of your neobank is determined by the customer’s lifetime value (LTV)/customer acquisition cost (CAC) ratio. The greater the ratio between LTV and CAC the greater revenue is expected from every new customer. The primary thing to do is to keep your customers satisfied.
What are the Trends of Neobanks?
To be one step ahead of your competition You must know which trends within the field are beneficial. In the present, while going through the process of developing a natural neobank be sure to pay attention to the following factors.
Although neobanks aren’t banks in the conventional sense their security is as crucial. Digital banking makes use of security measures such as biometric authentication, encryption as well as other security measures to secure mobile and customer information. They also offer high-security features, such as freezing and locking at any time through the application. However that all security measures have been set up to facilitate user-friendliness and customers do not have to go through unneeded steps during transactions or when they need to verify their identity.
You could go even further and develop your security tool and software to safeguard the information of customers. It is advised to keep logs of every single transaction that takes place on your Neobank platform so that your security team can examine them at any point in the future.
Transparency in the field of financial services
Neobanking’s advantage is the transparency of its operations as compared with traditional banks. Because the neobank operates no physical locations, all information regarding the services, rates, transactions and commissions, promotions, and more, are required to be posted and presented to make sure that the client is informed of all information promptly.
AI as well as ML technologies
AI is now a part of all areas of the digital world and even in financial services, there’s no alternative to it in any way. Neobanks is asking users what they’d like to gain from the application. It is crucial to study and anticipate the behavior patterns of your intended audience, to ensure that the user is only thinking of the feature, and then discovers it’s already implemented in your application. This type of approach will improve the rate of conversion. AI is also widely employed in online chats and is growing each year.
Related Article: A Complete Guide to Metaverse – Digital Transformation in Blockchain
Do you want to know how To Create A Neobank?
Neobank is a product in the financial sector that eases the burden for those without banks and for those who cannot imagine life without dozens of financial transactions per day. Neobank does it simultaneously.
To increase its reach without losing existing customers, neobank will need to introduce new features and capabilities on an incredible frequency. It can achieve this by working with a team of developers and managers who are committed to the result regardless of the launch. We here at iTechnolabs can help you get there! Click the button below and let us know your dream; we’re there to bring it to life.