How to Build a Neobank: Tips, Features and Development Cost

In today's world, absolutely all processes are actively digitizing, and banking operations are no exception. The trend towards fully digital banks, i.e., neobanks, is actively developing. Nonetheless, they leave traditional banks far behind.

Neobank development is a trend in the banking sector and FinTech. Start-ups and financial institutions are interested in creating web and mobile solutions to get ahead of their competitors. If you are curious about how to build a neobank, this article helps you get acquainted with all the key points to consider.

Neobank is a financial institution, practically similar to traditional banks, but their revolutionary impact implies operating exclusively online with no need to attach to physical branches. All financial operations can now be completed through mobile or web applications, avoiding time-consuming bureaucratic hassles or standing in line for hours. Building your own neobank may enable businesses to offer their clients flexible, convenient, and entertaining ways to store and operate their finances.

Anyway, usually, digital-only banks tightly cooperate with traditional banking institutions to facilitate more comprehensive regulatory compliance and significantly expand the range of financial offerings (holding customers' deposits, obtaining access to payment networks, providing customers with investment capabilities, etc).

Let’s establish 3 key differences between neobanks and traditional banks:

Neobank mobile app development may not only be convenient but also profitable for you as an owner. Let’s focus on the most commonly utilized monetization models for neobank platforms:

• Transaction fees. Neobanks often charge transaction fees for activities like international money transfers, expedited payments, or operations with cryptocurrencies. These fees significantly contribute to their revenue stream.
• Premium accounts subscription. Some neobanks offer users the choice of a premium subscription-based tier, access to advanced functionality, a specific card status (silver, golden, platinum, etc.), and benefits or services for recurring fees.
• Partnership and referral programs. Through collaboration with other financial service providers, neobanks can earn commissions or fees for promoting and facilitating third-party services, including insurance, investments, and lending. Neobanks also offer their existing clients the option to refer friends, and in return, they receive both cash benefits and other rewards. The lifetime value of a new customer usually justifies the investment for rewards.
• Foreign exchange fees. Digital banks charge users fees for foreign exchange services, especially for international transactions and currency exchanges. In turn, customers receive a swift real-time exchange for various currencies.

Neobanking is genuinely an innovative approach for businesses to engage with tech-savvy users who prefer high accessibility over traditional and often outdated banking service providers. This emerges as an opportunity for businesses to cater banking services for previously underserved demographics, increasing the overall reach.

Neobank development allows your business to fulfill current consumer needs for flexible, swift, and easy banking services, as traditional banks with limited and bulky online and mobile functionality usually fail to meet these expectations.

Nevertheless, creating a neobanking app may help you make your business more visible to investors, increasing your chances for solid future partnership opportunities.

Now is the best time to start a neobank from scratch, and the neobanking market statistics are very much proving it. In 2022, the market size of neobanking was valued at $66.82 billion and is projected to have a rapid growth of 54.8% from 2023 to 2030. Besides the need to step away from overwhelming bureaucracy, the adoption of smartphones and other portable devices accelerates demand for adaptive and convenient tools for managing finances.

Below, you can examine the dynamics of neobanking user reach rate for the next 5 years:

Now it’s time to start building your own neobank. Even though the final fintech solution development roadmap may differ, below you can examine the list of 9 steps that can be taken as a basis for your personal neobank creation strategy.

This step is crucial and is often definitive to the neobank success. Assessment of business goals may help you choose the direction for building a solution that will solve your problem or respond to your customer's pain points. The most common goals enterprises and businesses set for neobank creation and adoption include:

• User acquisition
• Existing users experience enhancement
• Digital onboarding
• Extended partnership capabilities
• Increased brand recognition
• Financial inclusion, etc.

This step will help you ensure that the built neobank is capable of meeting the expectations of target users and all stakeholders, solving the problems they encounter daily. While going through this phase with your IT vendor, together, you’ll define the functionalities and features of your neobank. Here are something that may help you determine requirements for your neobanking solution:

• Identifying stakeholders (target audience, your employees, potential partners, etc.)
• Data collection techniques (user surveys, market research)
• Requirements prioritization ( categorizing functionalities and features based on importance)

A very convenient and affordable option is to find an IT vendor who’ll help you build a neobank. This approach may help you access a wider talent pool of specialists in alignment with your project quality and budget requirements.

However, how to find a partner with the fintech expertise level that will guarantee your neobank final success? We have prepared a short list of criteria to seek from your future IT partner:

• Experience in the FinTech industry. Cooperation with a company that has practical experience in providing FinTech software development services, can significantly increase your chances of neobank app development success. Besides, you can request a vendor’s portfolio to check if they’ve worked on FinTech solutions similar to your concept.
• Knowledge of FinTech regulations. As your neobank has to be safe and reliable, ensure your future IT partner has an excellent knowledge of industry regulation touching data security (GDPR, KYC, ePrivacy, etc.), financial legislation and regulations (AMLD, MIFID II, PSD2, etc.), industry methods and workflows (EMV, Central Limit Order Book, IOI/RFQ quotes, etc.).
• Wide experience with third-party integrations. Integrations you can include in your neobank can provide your customers with a wider range of financial services, automatically making it inclusive and appealing for them. Ensure the vendor offers basic integration options like payment gateways (PayPal, Payoneer, or designing Stripe-based payment logic) or customer support tools (AI-powered chatbots) and more advanced ones, like cryptocurrencies integration (BitPay, Coinbase), or e-commerce and marketplace integration (Shopify, Amazon Pay, etc.).
• Positive customer feedback. It’s important to know how the IT vendor of your choice heads Fintech software projects, what cooperation strategies are used, and how they behave with their customers. To establish this, check out platforms like Clutch or GoodFirms to access their past customers' feedback on the cooperation flow and project outcomes.

To comprehend how to build a neobank that is going to be successful and will meet users' demands, conduct detailed research on competitors. This may significantly hint you on current neobank functionality tendencies, tailor your financial services to user’s preferences, and establish robust market penetration and ongoing presence.

While developing a neobank from scratch and planning to penetrate digital banking, there is another thing you’ll have to go through – banking and Fintech laws and regulations. The list of required standards depends on the region you plan to launch your neobank. Here is a short list of banking and FinTech regulations by region:

• United States: BSA, GLBA, OCC, CFPB, etc.
• European Union: PSD2, GDPR, EBA, etc.
• United Kingdom: FCA, OBIE, PRA, etc.
• Australia: APRA, ASIC, etc.
• Canada: OSFI, FINTRAC, etc.
• India: RBI, NPCI, etc.

Your software development team will help you select the most relevant tech stack that will align with your neobank scale and technical requirements. Here’s what is usually used for neobank app creation:

Back-end neobank development tech stack

• Programming languages: Node. js.
• Web framework: Express. Js., Nest, js.
• Database management: MongoDB, Posgre SQL
• APIs: RESTful, GraphQL
• Authentication and Authorization: OAuth 2.0., OpenID Connect

Front-end neobank development tech stack

• Programming languages: JavaScript
• Web framework: React, Angular
• State management: Redux, MobX
• UI libraries: Ant Design, Material-UI
• Responsive design: Bootstrap, Tailwind CSS

Exactly at this stage, your fintech software development experts start crafting the core of your neobank. Engaging predefined tech stack, your developers create and implement features functionalities and also work on third-party integrations. The list of third-party integrations may vary depending on your specific business needs, however, here are the key ones you can consider:

• Payment gateways (Stripe, PayPal, Braintree)
• Identity verification (KYC/AML)
• Budgeting tools (Mint, You Need a Budget)
• Financial data aggregation (Yodlee, Personal Capital)
• Lending and credit products (Kabbage, Avant)
• Fraud prevention security (Sift, Riskified), etc.

Another distinctive thing about Neobanks is its appealing but intuitive and simple design that sticks to your mind. Your e-banking solution has to be structured and easy to use to enable users to utilize it swiftly. Minimize user registration and authentication tiers to make the onboarding process more simple. Also, the design of your neobank app has to be responsive and be adaptable for various devices, including desktops, tablets, and smartphones.

As your business grows, your neobanking app may encounter more massive user traffic loads and will require continuous support and maintenance. Your IT provider may assist you in keeping the neobanking solution reliable, well-operable, and scalable, not depending on outer conditions. Here are what software engineers usually do at this stage:

• Code optimization
• Bug fixes
• Performance monitoring and optimization
• Security updates and patching, etc.

To make it easier for you to identify a raw idea and start a neobank, we suggest you study some examples of the most successful applications. They will help you to understand what features can make your bank stand out and what solutions appeal to users.

Monzo is a UK-based neobank created in 2015; by 2021, it had more than five million users. Today, the company is valued at more than $3 billion. When creating an account, which takes no more than 8 minutes, the user receives a contactless MasterCard.

The creators have built a neobank that provides many different features, including expense tracking and budget planning. In addition, for a fee of £14.99, users can access MonzoPlus, which will give them access to additional benefits.

Monobank’s successful neobank development story can be taken as an example. First launched in September 2017, Monobank became Ukraine's first completely digital banking solution. Through the years, Monobank managed to grow a comprehensive 8 million client base. During the financial journey in Monobank, users can be assured about the high-level security of their data, invite friends through a referral program, obtain cash benefits, and all this in the company of the Monobank cat mascot.

Here are the most notable Monobank functionality:

• Personalized credit limit
• Shake-to-pay
• Integrated minigames
• Custom cashback categories, etc.

Chime, a US neobank established in California in 2013, is now one of the fastest-growing in the U.S., with more than 12 million users. It has many exciting features, such as early direct deposit, mobile check deposit, and a savings account that automatically saves money for its customers. Chime is also popular because of its banking services, which have no fees and excellent customer service. If you decide to develop a neobank, consider this option for inspiration.

Revolut, developed in 2015, now has more than 18 million bank account holders and more than 500,000 business accounts. Its remarkable features are:

• Multiple currencies in one account
• Peer-to-peer transactions
• Currency exchange
• Fee-free foreign exchange
• Notifications on exchange rates and more

Thanks to abundant features, the application is top-rated among users worldwide.

For sure, competitors' neobanking solutions research may hint you on functionality to include while developing a neobank from scratch. However, to not confuse yourself with everything at once, examine the list of 5 key neobank features essential for every digital bank:

This functionality allows users to deposit checks into their banking account by taking a picture of the front and back of the check using their smartphone within the neobank app. This completely eliminates the need to visit the physical branch or ATM to deposit checks and is supported with advanced image recognition and fraud detection technologies, ensuring secure transactions.

Card management allows neobank users to easily manage their debit and credit cards issued by neobank through an app. This includes viewing recent transactions and tracking spending patterns, setting spending limits, blocking and unblocking cards, changing PINs, requesting new physical cards, tracking their delivery status, etc.

The first step a user has to take to start using your neobank application is to open an account. Your main task is to make the onboarding process swift, easy, and paperless, so the only thing needed is their smartphone and internet connection. Besides, it’s vital to minimize the number of steps needed to create an account, requiring only essential information like a user’s facial recognition or secure document verification through a phone camera.

While entering your e-banking solution, users have to be rest assured that their bank account data is robustly safeguarded. There are several ways to establish this:

• Multi-factor authentication enables you to add a security layer by combining several authentication methods (password, phone number, verification code sent directly to user’s devices, etc.)
• Biometric authentication enables users to log in securely using fingerprints and facial recognition technologies like Face ID, etc.
• Secure password management implies offering tools to generate a strong password

Another important aspect is to build a neobank that is going to be inclusive and convenient. Let users cover multiple financial needs by offering a diverse range of payment capabilities:

• P2P payments: Allows users to send and receive money from friends and family members instantly within a neobanking app
• In-built bill payments: With this feature, a user can pay bills and schedule payments for utilities, rent, and other expenses
• QR payments: Provide users with the ability to make contactless payments by scanning QR codes
• Mobile payments: By utilizing this, your neobank users can swiftly pay via Google Pay, Apple Pay, and Samsung Pay with the help of Near Field Communication (NFC) technology
• International payments: In other words, your users will be capable of sending and receiving money abroad with low fees and competitive exchange rates

Due to the sensitive nature of financial data, while building your own neobank, you must focus on facilitating outstanding security. Below, you can examine security methods for creating a reliable and safe neobanking solution:

• Data encryption to code and protect customer data, like personal information and financial transactions, using banking-specific encryption algorithms (TLS/SSL)
• Temporary CVV enables you to prevent unauthorized transactions by generating temporary CVV codes that regularly change
• Penetration testing that allows you to simulate real-world digital attacks and track how your neobanking app is capable of resisting
• Fraud detection and prevention that utilized AI-powered algorithms to quickly identify and prevent suspicious activity, etc.

Push notifications play a pivotal role in building a more personalized connection with a user. Here are what you can consider:

• Transactions alerts: Alerts a user instantly about any account activity like withdrawals or payments
• Balance alert: Notifies users when their bank account balance falls below a set threshold
• Security alerts: Informs users about suspicious activity or logging attempts
• Personalized notifications: Users receive personalized notifications about upcoming scheduled payments, bill payment reminders, etc.

The cost to build a neobank consists of various factors and is very hard to predict initially. This strongly depends on the functionality you want to implement, its complexity, whether you plan to create a neobanking software from scratch or need to layer more advanced features, etc. Besides, your outsourcing neobank development team composition and location influence the final price a lot.

At Cleveroad, we can offer you the following options:

• Developing a neobank from scratch and primarily building an MVP (Minimal Viable Product) to test the neobanking solution with the minimum functionality in real-world conditions
• Restructuring existing e-banking solutions within software modernization services
• Refining your neobank app by enhancing some parts of your neobank functionality

The timeframe needed to build a neobank app differs depending on the service you require. On average, we complete basic neobank MVP development in 3-6 months.

Depending on the neobank project complexity, the development team composition may be different and may also impact the price of neobanking app development. Anyway, here’s the basic selection of experts to build a neo bank application:

• Project manager
• Business analyst
• Solution architect
• UI/UX designer
• Fintech software front-end and back-end developers
• DevOps and QA engineers
• Team leads

However, if you need certain experts but not the whole team, you can utilize staff augmentation services, to quickly onboard tech-savvy and responsive FinTech software experts into your project.

Embracing all the factors, the neobank app development cost is varying from $90,000 to $300,000.

However, to get more precise information about the cost of your exact neobank concept, you can feel free to contact us. We’ll help you decide on key neobank software development criteria, consult you about the pricing, and will answer any of your questions.

Apart from learning how to start a banking app that works digitally, you also should know about several aspects to be aware of during the creation process.

The banking industry requires additional attention to regulatory compliance and licensing. This is a crucial condition to be able to operate legally. This may be considered a main bone in the throat during neobank development because of the fact that financial regulations are constantly evolving. Besides, it’s vital to remember about differences in regulations depending on the regions you choose to launch your digital bank. Anyway, the outcomes significantly outweigh the complexities as solid compliance opens your perspective of entering a fintech niche by being a certified financial services provider.

First and foremost, the infrastructure of your neobanking app has to be properly safeguarded to guarantee top security for the user's financial and personal data. Besides, it’s vital to understand your solution growth and ensure that an expanding user base won’t negatively impact the efficiency and productivity of your neobanking solution. Also, it’s a good idea to embrace cloud-based infrastructure – a tech foundation built on cloud platforms that powers a neobank's operations. It enables smoother power processing storage, avoiding investing in hardware and additional scalability.

While building a neobank from scratch, it’s always easier to reach success via establishing partnerships with fintech service providers like traditional partner banks, fintech companies, payment processors, loyalty programs, etc. Such collaboration may benefit both parties, whether it's increased reach, new user segments, or access to a specific expertise. Besides, to mitigate risks, consider running pilot partnership programs before committing to a long-term partnership to ensure that you and your financial services partner are on the same page while seeking to build a FinTech app.

Neobank, like any other banking institution, operates users' sensitive private and financial data and, consequently, has to retain users' trust. Besides the implementation of security measures, consider getting a banking license. Even though it’s not obligatory, this will provide your solution with government authorities' verification, legalize currency transactions, and ensure your neobank users have more options for financial operations.

It’s vital to focus on the audience segment you are going to serve. This can be technologically proficient Gen Z, underserved communities, or businesses with specific financial goals. To enable this, conduct thorough research on your target audience's pain points, demographics, financial habits, and demands. Besides, you can conduct surveys to gather user feedback and analyze data about current market conditions to build a neobank that stands out and fully satisfies users' needs.

Cleveroad has comprehensive experience in eBanking solution delivery. To prove our expertise, examine our recent case - an Online Services Ecosystem for European Investment Bank.

Our customer, a Swiss-based bank, provides financial services for clients in the B2B and B2C sectors. They’ve encountered significant issues with scaling up the existing software to growing business needs. Time-consuming sign-ups, challenges in operating trading accounts, and overall software inflexibility lead to client loss.

We’ve replaced the outdated and incomplete MVP system with full-fledged software that could cover the needs of B2B and B2C clients and the bank's internal team. Besides, we’ve improved the software user experience (UX) to make it easier for users to create and operate their digital accounts and sign up boundlessly. Also, the delivered software had to be compliant with FMIA

As a result, the creation of a new eBanking system enabled our customers to increase client attraction and retention rates by up to 20-30%. As the eBanking software meets FMIA regulations, the customer can now freely operate under its license, providing clients with secure banking services and fostering trustworthiness. Besides, to keep the solution scalable and flexible, we still maintain it and recently created a mobile app and robo advisory for the customer.

Cleveroad is a fintech software development company located in the CEE region with over 12 years of experience in the domain. Since 2011, we build custom banking and FinTech software for businesses and enterprises of various scales to help them successfully penetrate the FinTech niche and create a solution that will help them embrace innovations and attract a new customer base.

Here are the key benefits you’ll obtain while collaborating with us:

• Cooperation with a vendor with a strong knowledge of FinTech and banking regulations like PCI-DSS, GDPR, PSD2, and much more to guarantee the final FinTech solution's sustainability and security
• A partner with ISO 9001:2015 (quality) and ISO 27001:2013 (security) certifications proving the top proficiency in delivering reliable fintech software solutions
• Access to a wide range of banking software development services, including custom fintech software development, existing fintech software modernization, third-party integrations with internal systems and external aggregators, etc.
• You can utilize our managed IT services, and we’ll handle your IT operations partially or entirely, taking this burden of your in-house specialists

During the collaboration, we prioritize clear communication, responsiveness, and robust tech knowledge to help our clients keep the set level of software solution performance and high quality even after the cooperation ends. We choose an individual approach to understand how to craft software that aligns with unique business demand and will help you optimize budgeting, time, and effort.