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Neobank Software Development from the Very Beginning


The number of digital-only banks increases rapidly, thus it’s high time to get a better understanding of what it actually is and is it worth creating your own neobank. In this article, we’re going to answer the question of how to start a neobank in detail, describe the process of neobank software development and analyze the global market of neobanks. 

Neobanks differ greatly from traditional ones - they use less human resources, no offices or departments - almost everything is being done by software.  Interaction with clients is done by smart bots in messengers.

Today, people tend to use it more, as it helps save time and skip annoying stuff like visits to banks (to open an account or get any other service). Neobanking rapidly gets popularity among all types of FinTech and banking services users around the globe. The indisputable leader here is Great Britain, where the number of neobanks already reached the number of 28.

Even 5 years ago, people would perceive neobanks as something strange and hardly would keep and manage their savings there. Today the situation is turning 180 degrees and we see the rise of this market. And the idea of how to start a neobank and make it more competitive is actively discussed today in the FinTech industry. In our blog, you may also find a list of the most popular FinTech apps

Neobank Market Size Overview

Statista report says that the global market size of neobanks has almost beaten the target of 35 billion U.S. dollars in 2020 and the estimated growth rate is 47.7 percent each year until 2028. It is projected to be 722.6 billion U.S. dollars.

The key growth driver is the extremely high penetration of smartphones around the globe which will grow further and double by the end of this decade. It boosts the competition forward as using smartphones pushes people to minimize physical presence in different places - banks, shopping malls and others. COVID-19 added more fuel to the popularity of remote services, but surprisingly - not neobanks. 

As per Global Neobanks Report, at the beginning of 2020, the amount of neobank users already exceeded 39 mln people around the globe. Statista analysis says that these are mostly iOS and Android (over 30 mln. downloads) users, that proves the point that neobanks are mobile-first solutions. As mentioned earlier, the country that boasts the biggest amount of neobanks is Great Britain. From the technology standpoint, their experience and practices of how to build a neobank are used by many other countries as a benchmark. 

At the same time, the pandemic has slowed down the development of neobanking. It forced most of the major banks to close their units and this is the reason why the lockdown didn’t result in a major uptake for neobanks. People tend to trust the digital solutions of the bigger banks that they used before the lockdown. The decline among neobanks is 10 to 20% throughout Europe in 2020. But these figures do not mean that the decline is the trend now.

The major neobanks - Monzo, Revolut, N26 and Monese - say that they see fluctuations in the number of downloads, but they have no negative dynamics, only the slowdown of the growth. In a bigger perspective, neobanks have the advantage of higher adaptability to the needs of users compared to large corporate banks, where business processes have longer life cycles.

Eager to find out how your neobank would look like? Or maybe you have an idea to create a banking appLeave your contacts here, we’ll call back shortly.

What Is Neobank and Its Workflow

Neobanking is a branch of the FinTech industry that offers digital-only financial services and doesn’t have any physical branches. When you create a neobank, you need to understand first that these banks interact with their clients via remote tools only — phone, email, and chat. All the services are available in the mobile app, that offer users constant access to their financial management. For sure any large bank can offer it too, but the set of features offered by neobanks is by default broader and they can boast a greater amount of partner offerings. Even conservative banking services users today start to look at neobanks as they have good word of mouth around them. Neobank apps often have a number of features that allow you to customize services to your own needs. 

There is a great difference between classical banks and neobanks. The latter ones aren’t chartered with state or federal regulators as banks, they almost never extend credit or overdraft users, and they quite often partner with traditional banks to insure customer deposits. 

How do they make money? The main source of revenue is banking interchange, which is actually the fees from merchants on the purchases in their stores paid by neobank debit cards. Because of their smaller size compared to their megabank counterparts, neobanks are allowed to interchange up to seven times bigger percentages than those available to traditional banks (having more than $10 billion in assets). Another way to make money for neobanks is to charge customers when they are using out-of-network ATMs. Different neobanks name different percentages, but basically, it is somewhat between 8% up to 20% of the overall income. For the reason of its growing popularity among younger people, neobanks (also called challenger banks) are quite often funded by venture investors. For example, in 2020 Chime bank got  $485 million investments and Varo bank raised $63 million.

To launch your own neobank you need to understand how a neobank works. From the user’s standpoint, it’s a pro-level application that helps to effectively manage your money and supports you in taking decisions. 

Open a neobank is a quick and easy thing to set up, compared to traditional banks you spend incomparably less time to get an account and start using financial services. You only need to download the app and create your account. It doesn’t duplicate the functionality of a traditional bank and some neobanks allow you to link your usual bank account to the neobank one, so you can have both the benefits of your classical bank and the ease and efficiency of finance management available with neobanks.

Ready to try to build your own neobank? Let’s do it together! Fill in a short contact form and we’ll get back!

Successful Examples of a Neo Bank

In the end of 2020 Finextra has compiled the list of the most successful neobanks around the globe. While making this list, they were looking at their current capitalization or ability to get a national banking license. The top 5 neobanks list include:

  1. Chime (USA) — a mobile-only bank, currently valued at $14.5 billion;
  2. Varo (USA)  - the first neobank that has received the national bank charter (an independent license).
  3. Dave (USA), a neobank valued at $1 billion.
  4. Monzo (UK), the first neobank to get a bank license in the United Kingdom and Australia.
  5. Revolut (UK) - the main newsmaker among neobanks that has the most aggressive marketing strategy. Currently valued at $5.5 billion. 

Common Features of a Neobank

Developing a neobank from scratch needs a good understanding of its core features. Neobanks always differ one from another as their services are not commodity now. They can render financial services without having a banking license (Yolt, Simple, Chime Bank), work with an alternative banking license (to provide e-money services, examples - Monese, PayPal) and also some neobanks have banking license (Monzo, N26, Revolut). There are several features, that most of the neobanks do have in common and which are to be kept in mind when you think about how to set up a neobank.  Those are:

  • Enhanced customer experience

Neobanks offer personal financial management, and together with that, they use ML and AI to improve user experience and support their users in decision - making process.

  • Financial services, available anywhere and anytime

Neobanks invest in better customer support made by smart chatbots. Its users can access and manage their finance anytime and anywhere, where their smartphone is online. They also have more flexible proposals for small and medium-sized businesses and offer them the core features like business reporting, accounting, and tax management. 

  • International transfers and global network of ATM

Neobanks offer quick international transfers at an affordable cost and (one of the most admirable features) - a hassle-free cash withdrawal in any country.  

  • Open technical infrastructure

Open tech stack allows neobanks to develop pro-level FinTech instruments much faster. They don’t have heavy and slow-to-upgrade bank ecosystems behind and they’re fast to implement new features and capabilities. 

  • Customer-centric design

Neobanks are contributing most of its resources to meet each and every of its clients’ needs and expectations. User-centric insights are defining their business model.

Challenges You May Face When Starting a Neobank

  1. Challenge to find your USP (unique sales proposition)

Building your own neobank you need a killer feature that will distinguish you from others. As all neobanks are now trying to have some USP, it might be quite problematic to develop a completely new FinTech feature. For example, features like card freese or app-based spending categorization are now available in almost every neobank.

  1. Challenge of regulation 

If 5 years ago you could have a strong benefit if you make an agreement with some traditional bank to develop additional services via open API, today it is almost an industry standard. The UK-government-mandated Open Banking initiative now sets the industry trend to make banks more open to cooperate with neobanks, thus the competition between neobanks now is more aggressive. 

  1. Challenge of neobanks owned by traditional banks 

When business owners see a profitable market niche, they try not to miss it. Traditional banks have no barriers to develop their own neobanks and hire the best developers to make a competitive solution. There are already several neobanks that belong to mature banks like Mettle from NatWest.

  1. Challenge of COVID negative influence

As we have already said in the very beginning, COVID had truly a negative impact on the market of neobanks. This is a temporary problem, but you have to be sure that you have enough resources to support this business until the market gets back to its pre-pandemic growth rate or that you’ll definitely have investors who will not demand immediate payback on the money they gave you.  Currently, the COVID effect hasn't stopped yet - Reuters reported that Monzo was letting go up to 120 people (around 8% of its total workforce).

4 Steps How to Start a Neobank

Ok, you decided to develop a neobank. To estimate the preliminary scope of work, we’ll list now the key things you will definitely do on your way to the final product. Here it comes:

Step 1: make a neobank platform basis 

Developing a neobank first you begin with back-end stuff. Neobank’s core is API (application programming interface), then you need a card processing application and several back-office tools. API allows you to connect your software to other services, like authentication module or payment gateway.  The card processing app manages transactions and other operations with credit or debit cards. The back-office tools will help to manage your neobank platform. Important to mention - the core of your platform must be easy to update each and every minute - the market changes rapidly and if you miss key trends, you lose your business. 

Step 2: Frontend development 

Neobank is a digital-only bank, thus your application interface is your one and only contact point with your user. This is the place where you need to become a perfectionist and polish all the features to truly deliver the best user experience. This is an indispensable part of a compelling neo-banking platform. There are some features that every neobank should offer that include: accounts, credit/debit cards, payments, transactions history, budgeting, investing options, child accounts, notifications and chatbot (help for users)

Step 3: Neobank security 

The security of the bank is the basis of users' trust. To make it a robust part, you’ll have to approach it from 3 sides:

  • Built-in security. You have to develop multi-layer security combining custom-built solutions and tools from trusted vendors. For example, some bots can seriously help in protecting from fraud, hacking, and data theft.
  • Machine learning security alarms. Using machine learning algorithms helps to analyze huge amounts of data and find patterns that will help your security teams to timely sort out dangerous moments and trends.
  • Users authentication. Developing a set of authentication tools, you need to focus on those that can really protect from standard threats like password theft, for example - by using video calls to verify identity.

Step 4: Testing 

Let us name the most prominent parts you need to test before proceeding further with your neobank app. Those are:

  • unit-testing (shows the performance of all the usings of your app) 
  • integration testing (shows how well can you integrate with other IT solutions) 
  • security testing (including penetration tests)
  • user acceptance testing (also user experience) 
  • regression testing (a double-check for all that you’ve already tested)

How Much Does It Cost to Build a Neobank?

The price of neobank development is mostly based on the hourly rates of IT specialists you employ. It differs from region to region. The average prices are the following:

  • The USA - $120-150
  • Western Europe - $50-100
  • Eastern Europe - $35-40
  • APAC - $25-40

Techcrunch issued an overview of neobanks stating that a FinTech giant is really an expensive thing to do. Our experience shows that the price can be somewhere between  $350,000 to $580,000 to start serving customers with primary features. How to build a FinTech app, please, read here.


Neobanking is a much promising area today - corporations build ecosystems and this is the best place where neobanks can fit. How to start a neobank and make it a part of a bigger ecosystem is one of the main questions that are discussed in the FinTech industry today.

McKinsey says that if a company wants to participate successfully in ecosystems, it must often change the way it thinks about customers. Instead of limiting itself to services within its historical industry borders, it may venture beyond in an effort to serve customers from one end of the customer journey to the other. For neobanks, it's an area of comfort - it’s their initial business idea - to find new niches where they perfectly meet their users' needs.

TechCrunch underlines that it’s the best time to create FinTech startups that help to manage finance and save money as COVID boosted a new habit to develop - people tend to save money and spend it more effectively. For sure, neobanks will not outperform traditional banks, but we can say that they will coexist and will fit more ecosystems compared to classical banks.

Thus it’s high time to enter this growing market and prove potential investors that they need to choose your platform. We are happy to develop the IT concept of our future neobank and support you on your path to millions of users worldwide! Click here to fill in the contact form, we’ll be fast to respond!

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