Launching a neobank app: Features, technologies and regulations

neobank app development guide for fintech entrepreneurs

Traditional banks no longer hold a monopoly in the financial sector. As people demand more convenience and flexibility from financial services, neobanks are breaking in. These digital banking platforms offer ease of use and lower costs, attracting users globally. If you’re interested in creating custom software solutions in the fintech field, this article is for you. Here, we’ll explain the key features, technologies, and regulations involved in launching a neobank app.

In 2022, the worldwide market for neobanks was valued at USD 66,82 billion . It’s expected to grow at a rate of 54.8% annually from 2023 to 2030. This growth is likely driven by customers wanting more convenience from banking services.

neobank app market statistics and growth rate

Europe led the worldwide market in 2022, capturing more than 29.0% of global revenue. The Asia Pacific region is expected to be the fastest-growing market in the coming years. This growth will likely be fueled by the widespread use of internet services and the increasing prevalence of smartphones. Moreover, the availability of easy and convenient banking services and the surge in digital bank solutions in countries such as Japan, India, and China are expected to boost market growth further. The young population of the region also adds to the potential for neobank adoption.

neobank app market: regional statistics

Although neobanking apps are newer in the Middle East and Africa (MEA) compared to Europe and the US, they are rapidly becoming more significant by providing solutions to people who have limited access to banking services. Notable examples include neobanks like Now Money, Rise, and Yap in the United Arab Emirates (UAE), and Dopay in Egypt. These companies work in collaboration with a traditional bank to use their banking licenses and provide services efficiently and easily. In Turkey, Papara, an electronic money institution, offers a popular prepaid card independent of traditional banks, which has attracted over 17 million users.

As you can see, this direction of digital banking is especially spread in Europe and Asia and is actively growing in the MENA countries.

What is a neobank app

A neobank app is a digital-only banking platform. Unlike traditional banks, neobanks operate entirely online without any physical branches. Everything from opening an account to managing your finances happens through the app. For instance, you can check balances, transfer money, pay bills, and even get loans, all from your smartphone.

neobank app design concept: an app for credit building
Here’s our app design concept of a neobank app

Why do people use neobanks?

Convenience:

Neobank apps offer unparalleled convenience. Users can perform banking tasks from their smartphones at any time, whether at home, at work, or even while traveling. No need to visit a branch or find an ATM — a few taps on a neobank app and the transaction is done.

Lower fees:

Traditional banks often impose fees for services like account maintenance, overdrafts, and even transactions. Neobanks, however, frequently offer these services at lower costs or completely free. Many neobanks have zero-fee accounts that don’t charge you for everyday transactions. For instance, the Revolut app doesn’t charge any fees for making purchases in base currency but it charges fees on cash withdrawals and spending in other currencies.

User-friendly experience:

Since neobanks don’t have physical branches, such apps focus on customer experience, have an intuitive app design, and include easy-to-use features. Everything from the interface design to the onboarding process is customer service oriented.

Credit building:

Some neobanks offer services aimed at building or rebuilding your credit score. For those new to credit or those who need to improve their credit rating, neobanks can offer secured credit cards or credit-building loans.

Varo, a popular neobank app for credit building
Varo is an example of a credit-building neobank app
Serving the underbanked:

Many traditional banks focus on customers with a certain income level and credit history. Neobanks, on the other hand, often target the underbanked or those without access to conventional financial services. For example, gig economy workers who don’t have a regular income might find it easier to open and maintain an account with a neobank.

Key features

Creating a neobank app means crafting an intuitive, secure, and engaging mobile banking app that stands out in the fintech industry. Here's a look at the key features you should incorporate to develop a successful neobank app:

  1. Quick account setup: Enable users to open an account in just a few steps. Use minimal data entry and offer options like scanning identification documents to speed up the process.

    Account setup in the Acorns neobank app
    Account setup screens in the Acorns fintech app
  2. Robust security measures: Security is critical. Integrate features such as two-factor authentication, biometric logins like fingerprint or facial recognition, and end-to-end encryption to protect user data.

    Chime neobank app: biometric authentication
    Chime banking app uses Face ID, two-factor, and fingerprint authentication to ensure that only authorized members have access to their account information
  3. Digital KYC: Implement a digital Know Your Customer process to verify the identity of users efficiently and swiftly, enhancing security and compliance without compromising convenience.

    The KYC process in the Revolut neobank app
    The KYC process in the Revolut banking app
  4. Card management: Allow users to manage their debit and credit cards within the app. Features could include setting spending limits, blocking or unblocking cards, and activating new cards, all contributing to a higher degree of user control and security.

    Card management in the Aspiration neobank app
    In the Aspiration neo banking solution, users can have physical and digital cards
  5. Push notifications: Alert users to account activity instantly. Whether it’s an incoming payment or a suspicious transaction, timely notifications keep users informed and engaged.

    Push notifications in the Acorns neobank app
    Acorns neobank app allows users to enable and disable push notifications
  6. Personal financial insights: Include tools that help users manage their finances. Budgeting features, spending trackers, and savings goals can guide users to better financial health.

    Tracking spendings and getting financial insights in the Albert neobank app
    Albert mobile banking app allows users to track their spendings
  7. 24/7 customer support: Offer multiple app support channels like chatbots, live chat, and phone support to help users resolve issues at any time.

    Chatbot for user support in the Chime neobank app
    App support in Chime is implemented through a chatbot
  8. Seamless transactions: Ensure the banking app can handle payments, transfers, and other transactions smoothly and without errors. Features such as the ability to send money to contacts or pay bills should be straightforward.

    Transactions in the popular neobank app, Varo
    Here’s how transactions look in the Varo neobank app
  9. Integration with other services: Expand functionality by integrating financial services like cryptocurrency transactions or investment platforms directly within the app.

  10. Customization options: Allow users to personalize their experience. Customizable dashboards, adjustable security settings, and the ability to tag and categorize transactions are examples of features that enhance user satisfaction.

By focusing on these features during the app development process, your neobank app can offer a valuable, reliable, and enjoyable banking service that meets the expectations of today's tech-savvy consumers.

Things to consider before creating a neobank app

Before diving into the development of a neobank app, entrepreneurs need to consider several crucial factors to ensure their service is viable, secure, and compliant. Here are essential considerations to keep in mind:

  1. Regulatory requirements:

    Understanding and complying with the financial regulations of the country where the app will operate is vital. For instance, if you are launching in the United States, you need to comply with the regulations enforced by the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB). In the UK, your banking app must meet the Financial Conduct Authority (FCA) standards. Each country has its own set of rules, and non-compliance can lead to severe penalties.

  2. Deposit insurance schemes:

    In the United States, online banks need to ensure their customers' deposits are FDIC insured, which protects deposits up to $250,000 per depositor, per insured bank, for each account ownership category. This insurance builds customer trust, as their money is safe even if the bank fails. The Canada Deposit Insurance Corporation (CDIC) automatically insures eligible deposits up to CAD $100,000 per depositor per insured category at each member institution. In the UK, The Financial Services Compensation Scheme (FSCS) protects eligible deposits up to £85,000 per person per financial institution. In Australia, The Financial Claims Scheme (FCS) covers deposits up to AUD $250,000 per account holder, per institution, similar to the FDIC’s coverage model.

  3. KYC and AML compliance:

    Know Your Customer (KYC) and Anti-Money Laundering (AML) laws are designed to prevent fraud and illegal activities. KYC involves verifying the identity of customers when they open an account, ensuring they are who they claim to be. AML regulations involve monitoring customer transactions for suspicious activity. Each country will have specific requirements for KYC and AML compliance that must be integrated into your banking app's onboarding and monitoring processes.

  4. Banking as a Service (BaaS) solutions:

    BaaS platforms allow entrepreneurs to build banking solutions atop an existing bank’s infrastructure. This partnership can simplify the process of becoming a neobank by providing the necessary banking licenses and regulatory compliance. BaaS providers like Solarisbank in Germany or Railsbank in the UK offer APIs that integrate banking services directly into your mobile app, reducing the complexity and cost of starting from scratch.

    Not sure which BaaS to choose for your neobank app development? Contact us for a free consultation

  5. Data security and privacy:

    Data breaches in fintech services can lead to significant financial and reputational damage. It's crucial to implement high-level security measures such as data encryption, secure APIs, and regular security audits — think about it in the beginning of the app development process. Additionally, compliance with data protection regulations, such as the General Data Protection Regulation (GDPR) in Europe or the California Consumer Privacy Act (CCPA) in the United States, is essential.

  6. Partnerships and integrations:

    Forming partnerships with fintech developers, financial institutions, and technology providers can enhance the functionality and reach of your neobank app. These collaborations might include integration with payment systems, financial planning tools, investment platforms, or international money transfer services.

  7. Tailored user experience:

    Different markets and demographics have unique needs and preferences. It’s important to research your target market thoroughly to understand what features and services are most valuable to them.

Ensuring that your project meets these requirements, you can lay a solid foundation for a neobank app that not only complies with regulatory standards but also meets the needs of its users.

Our experience in neobank app development

At Ronas IT, we are experienced in fintech app development and know how to solve tasks related to KYC, country-specific regulations, and how to integrate banking solutions like BaaS and payment gateways. Here, we share our experience with neobank software development — these projects are under NDA, so we can’t disclose the apps’ names and show the interfaces but we can share the app development story and explain our decisions.

Neobank mobile app development for the USA market

Our client requested us to create a neobank app to help US residents get credit cards. In the USA, people can’t get a credit card if they have a low credit rating. This banking service helps users to get a higher credit rating or just get a card and use it. Our task was to create a simple and attractive interface, build a stable and secure system, and protect users' financial data.

Microservice architecture

Our client's business has isolated processes — the support service should not know anything about user finances, that’s why the service that processes transactions should have access only to transactions, but not to user data. To ensure that individual processes don’t depend on each other, we have chosen a microservice architecture approach. Among other things, the microservice architecture is more flexible and stable — if one service fails, others are working, and the banking app does not stop.

Data privacy

When users sign up, they upload their passport photo and personal data, so it's crucial to protect them. We don’t store any private data on our servers. We send the data immediately for KYC verification and to the bank. Our microservice architecture uses a separate database for each service, storing only the data each service needs. If an intruder accesses one database, the data they receive is useless without context.

In our app development process, we also use a whitelist approach. Developers must verify themselves and request access from the DevOps engineer, who grants it manually through a secure server. Inside the company, we follow a least-privilege and fine-grained access approach, so team members don't have full access to the entire app development project.

BaaS and KYC

To contact major US banks, we use a third-party service called Bond, which acts as a gateway. Bond partners with Evolve Bank & Trust which is FDIC-insured and meets USA regulatory requirements for fintech services. We use Persona KYC to verify the identity of new users through checking their SSN and ID. Simultaneously, Sardine KYC runs fraud detection checks to ensure the new users are not associated with fraudulent activities or risky behaviors. Once the users pass the KYC checks, we use Bond to create and manage bank accounts, issue cards, and enable financial transactions via its banking APIs.

Certifications

For this project, we need to certify the fintech app with SOC 2 — it ensures that the service follows strict information security policies and procedures required for US financial services. Our team has already passed the certification and now we are waiting until the bank’s team will be certified. Other important standards that needed to be considered were PCI DSS and ISO/IEC 27001. We’ve already got access to the App Store and passed the review, it confirms that the banking app meets all the important requirements and we have no problems with the law.

Tech stack

React Native for mobile app development

PHP Laravel for backend development

Cloud SQL as a database

Results

The project went into production back in November, then we started a closed beta test — the neobank app had live users, they opened their cards and made transactions, but the app wasn’t published in the App Store. The app was approved in the store in April and now any user can download it. For now, our client's marketers are thinking over a strategy for how they will catch up with new users. More than 1,285 accounts have already been created — these are live users who have passed verification. We continue to work on the neobank development project, add new features, the app is constantly changing and being upgraded.

Neobank app project from UAE

Recently, we started a new app development project with a client from UAE. They requested us to create a mobile neobank app from scratch. Thanks to the experience with the previous neobank development project, our team was able to provide analytics services:

  1. Helped to determine the type of program (credit/debit/CDA cards), and the type of planned investment app (crypto/fiat).
  2. Helped to determine the criteria for choosing BaaS, indicating what our developers need. Explained which BaaS is a perfect match, which one is fine, and which one shouldn’t be used.
  3. Made an impact map to visualize the connections between the project's goals, the steps needed to achieve those goals, and prioritize tasks in the app development process.
  4. Identified a scope of features for the first version, and compiled a roadmap.
  5. Estimated the costs and timeline for the design stage according to the scope. The app development stage was estimated approximately, we will make a precise estimate after the design stage is finished.

The project is successfully moving to the UI/UX design stage. We plan to finish the design by the time our client signs the contract with the selected BaaS — now the client's legal team is negotiating with different providers.

To conclude

Neobank development encompasses a range of considerations, from robust security measures to compliance with local regulations. Now that you know which features a typical neobanking app needs and how you need to prepare for such app development, you can proceed to searching for a reliable vendor. You can ask us any questions regarding your project — just fill in the form below and we’ll get back to you in 24 hours.

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