How to open a neobank, where to get a license

Non-banks are a new generation of banks that provide financial services online, without traditional branches. They are in demand among e-commerce professionals, freelancers, migrants, etc. Today we're going to talk about how to start a neobank in 2022 and where to get a license.

How to start a neobank: step-by-step instructions

When creating a financial platform, you should remember that you need to do more than create a beautiful application. The architecture of the neobank must be thought of from beginning to end - it will be required by the regulator before granting a license.

It is necessary to determine the user for whom the service will be oriented - of one or several countries and which ones (CIS, EU, USA, and Asia). The place of registration of the company and obtaining a license depend on this.

The service should be comfortable, transactions should be fast, and security should be at the highest level. You will have to create the following:

• several dozen programs that will be able to support all the functions of the mobile application;
• web applications that employees will use for administration.

This is not a day's work. Prepare to spend at least 6 months, if not years. For each function to work smoothly, without failures, it must be tested a hundred times, and any error must be corrected.

Step 1: The neobank core

To run an application you will need:

• API (application programming interface) - connects the application to other services (payment gateway, authentication module, etc.). It also connects different services in the client application;
• Card processing application - handles everything related to transfers and other debit/credit cards;
• Back office - manages the entire neobank platform.

If you start from scratch, you will completely own the entire system, build the infrastructure, and develop startups based on it. The minus is that you will have to spend time and money on development.

You can also integrate with well-known banks, enter the market faster, and spend less money. Minus - you won't own the project completely, and you will have to work with outdated banking software, which can slow down the implementation of new features.

Step 2: Developing the client application

In addition to the server part, you have to create the client banking application, which must include the functions through which customers will manage their money:

• accounts;
• credit/debit cards;
• payments;
• transaction history;
• investing;
• subsidiary accounts;
• notifications;
• live chat.

Step 3: Privacy

Security plays an important role in the work of the neobank. It is necessary to create a Security Management Center, as well as special tools that will protect against hacking, fraud, and common threats. Subsequently, they should be detailed to the regulator, from whom the company will obtain a license.

Step 4: Test the platform

It is impossible to detect and fix all the problems with manual testing - the process must be automatized. For example Revolut uses 100 automatic tests to check how 1 action in the system works. You can not do this on your own, hire a team of QA engineers and testers to solve this problem.

Step 5: Get a license

Before you launch the platform, go to the regulator and get a license.

License

Most non-banks have a payment license, but it does not entitle them to fully offer themselves as a bank. The best way to get a banking license is to apply to the regulator of the country where the company is registered. But it's a long process, and not suitable for everyone.

Other options:

• An electronic money license, allows you to provide financial payment services, including the creation of IBANs. The license is beneficial for the companies which plan to provide only e-money services, but will not be suitable if a neo-bank will give credits, as well as insure deposits;
• Payment Institution License (PI) which allows you to provide all payment services and card operations. But with it you can not give long-term loans directly, only through a partner bank, whose funds are insured in case of bankruptcy. PI license is good if the company plans to expand into a serious banking structure.

Be prepared that the regulator will carefully check the documents, including the identity of the owners of the startup, and the founding papers. You have to provide a business plan, project architecture, speed of operation, ways to protect against fraud, etc.