How do neobanks solve core banking problems

Building a Neobank - in less than a year

Necessary steps in setting up a Neobank

1. At the beginning there is the development of a vision - it is also the basis of the functional scope of the Neobank.

The basics for setting up a Neobank are no different from those for setting up other companies. A vision is essential to make the goal of Neobank tangible for all co-founders involved. The functional scope and the product range are defined on this basis. At the same time, many neobanks do not see themselves primarily as banks, but as technology companies that connect financial products. This means that the technological structure (see step 4) is already anchored in the vision.

2. The business model must then be defined.

Should the Neobank be established from an existing bank or as an independent company? In order to break through existing, often coordination-intensive structures and to ensure a quick market launch, the start-up can be a valid option. Here, however, the additional effort for areas such as personnel or for the technological fundamentals must be planned.

3. The next step is to select the type of banking license.

A full banking license allows all banking transactions to be carried out. However, an initial capital of at least 5 million euros must be available, which is often an obstacle, especially for banks to be founded. Applying for a sub-banking license is associated with fewer requirements, but then the maximum possible functional scope of business activities is limited to sub-segments, for example securities trading.

As the responsible regulatory authority, BaFin must provide feedback no later than six months after applying for the license. Which means that in this process step the construction of the Neobank has to be paused for up to six months. In some cases, it is also possible to use an existing banking license, for example by purchasing an existing bank or by using the license of an existing institute. However, such a construct can limit later flexibility.

Alternatively, there is a white label offer that not only provides the technological platform, but also allows the provider's bank license to be used. For the bank to be founded, only a branding that is visible to the customers needs to be designed. The product portfolio offered with this solution may, however, be less individual than originally planned.

4. In the following step, the technological structure must be focused.

The technological structure is often the most complex step. Both white label banks and providers of complete banking landscapes or even business process outsourcing providers can accelerate this process, but not completely eliminate it. For this reason, the need for stringent IT project management is also of great importance.

The selection of a core banking system represents an elementary part of the technological structure. Uniform and clearly defined standards are necessary in order to fully exploit the advantages of a completely new IT architecture. These should be viewed as an elementary part of Neobank IT. Oriented towards modern technologies, they enable a solid foundation, for example for scaling or integrability with third-party providers and thus also the future viability of the bank.

Another part includes the selection of other systems, such as for marketing, human resources and controlling. In addition, the development of the differentiating elements, such as the smartphone app, takes place in the step of technological expansion, which often takes up a large part of the planned investment amount.

5. Employees and work rooms are still missing for the bank to open.

In the last step, organizational aspects, such as the hiring of employees in leading positions as CEO, CTO and CFO, must be considered. Last but not least, a Neobank also needs a building with workplaces and work materials. In the initial phase, the use of coworking spaces is often an option.