The banking industry has undergone a radical transformation over the past decade, driven by digital innovation and shifting consumer expectations. Neobanks — fully digital financial institutions — have disrupted traditional banking by offering seamless user experiences, low fees, and innovative services tailored to modern customers. According to market research there are over 400 neobanks worldwide as of 2024 and the global neobank market is projected to reach $2 trillion by 2030. In addition more than 20% of millennials and Gen Z prefer digital-only banking solutions. This surge presents a compelling opportunity for fintech entrepreneurs looking to establish their own neobank. But how do you build a neobank from scratch?
Neobank? What’s that?
A neobank is a digital-only financial institution that operates without physical branches. Unlike traditional banks, neobanks leverage cutting-edge technology to offer seamless, user-friendly, and cost-effective banking solutions via mobile apps and online platforms. They cater primarily to tech-savvy individuals and businesses looking for fast, flexible, and innovative banking services. Neobanks function entirely online, relying on cloud-based infrastructure and advanced APIs to provide financial services. They typically partner with licensed banks or acquire their own banking licenses to offer core banking functions like payments, loans, and savings accounts. With AI-driven analytics and automation, neobanks enhance customer experiences by personalizing services and optimizing transaction processing.
Differences between traditional banks and neobanks
Traditional banks and neobanks differ in several key aspects. Traditional banks operate physical branches where customers can conduct transactions, while neobanks are entirely digital, eliminating the need for in-person banking. Customer support in traditional banks is typically available through in-person visits or phone calls, whereas neobanks rely heavily on AI-driven chat support and automation.
In terms of fees, traditional banks often charge higher account maintenance fees, transaction fees, and other service costs, while neobanks tend to offer lower or no fees due to their cost-efficient digital infrastructure. Transaction speed is another major differentiator—traditional banks may take longer to process payments and transfers, while neobanks provide real-time transactions.
Furthermore, neobanks focus on a highly personalized banking experience using AI-driven insights and data analytics, whereas traditional banks have limited personalization due to legacy systems. These differences make neobanks particularly attractive to younger, tech-savvy customers who prioritize convenience and digital-first solutions.
Neobanks’ costs
Building a neobank is a costly endeavor, with initial investments ranging from $5 million to $50 million, depending on the business model. To give you a sense of the scale of costs involved, it’s worth noting that Revolut raised approximately $800 million across multiple funding rounds before reaching profitability, N26 secured over $900 million to scale its operations and navigate regulatory challenges and Chime – one of the largest U.S. neobanks, has raised more than $2 billion to expand its product offerings and customer base.
Major cost factors include:
Licensing and Compliance – Regulatory approvals can cost millions.
Technology Development – Building and maintaining a robust banking platform requires a high budget.
Security and Fraud Prevention – Investing in cybersecurity is essential.
Marketing and Customer Acquisition – High competition demands a solid marketing strategy.
Operational Costs – Includes customer support, partnerships, and workforce expenses.
Neobanks are not just changing banking—they are redefining financial inclusion and customer experience in a digital-first world.
– Piotr Hanusiak, CEO of INCAT
Benefits of neobanks
Neobanks offer several advantages over traditional banking models, making them an attractive option for both consumers and businesses:
Lower Costs – Due to the absence of physical branches, neobanks operate with lower overhead costs, enabling them to offer reduced fees or even fee-free banking.
Seamless User Experience – Their mobile-first approach ensures a smooth, intuitive, and fast banking experience.
Faster Transactions – Real-time payment processing, instant money transfers, and early paycheck deposits are some of the core advantages.
Personalized Banking Services – AI-driven analytics allow neobanks to offer tailored financial products and insights.
Financial Inclusion – Many neobanks cater to underbanked populations, offering accessible banking services to individuals and small businesses who may struggle to get accounts with traditional banks.
Integrated Financial Tools – Budgeting tools, automated savings, cryptocurrency trading, and real-time financial insights help users manage their finances more effectively.
Steps to building your own neobank
If you’re considering launching a neobank, here are the critical steps to follow:
1. Define your value proposition
The first step in building a neobank is identifying your unique value proposition (UVP). The fintech market is competitive, and differentiation is crucial. Consider the following questions:
Who is your target audience (e.g., freelancers, SMEs, unbanked populations)?
What problem are you solving that traditional banks fail to address?
How will you monetize your services (subscription model, transaction fees, lending, etc.)?
Example: Revolut started as a travel-focused banking alternative, offering multi-currency accounts with low exchange fees. Understanding your niche helps guide product development and branding.
2. Secure regulatory approvals
Banking is a highly regulated industry. Before launching, you need to obtain the necessary licenses, which vary by country. The two primary routes are:
Banking License: Required for offering full-fledged banking services, but expensive and time-consuming to acquire.
Partnership with a Licensed Bank: Many neobanks initially operate under the license of an established bank to avoid regulatory hurdles.
3. Choose the right core banking system
A robust core banking system (CBS) is the backbone of any neobank. The choice of CBS influences scalability, security, and flexibility. BOS is an ideal choice due to its modular architecture, API-driven approach, and cloud-native infrastructure.
Why BOS?
Fast Deployment: BOS enables quick go-to-market strategies for neobanks.
Scalability: Handles growing transaction volumes without performance issues.
Flexibility: Supports various financial products, including current accounts, savings, lending, and subscription-based models.
Security & Compliance: Built-in compliance features for international regulations (e.g., GDPR, PSD2, AML).
Example: D360 Bank – a digital bank in Saudi Arabia, leveraged BOS to launch its services efficiently while ensuring compliance with local regulations.
4. Build a seamless user experience (UX/UI)
Neobanks thrive on superior user experience. Your app and web platform should be:
Intuitive – Simple onboarding and account setup.
Fast – Instant payments, transfers, and notifications.
Secure – Two-factor authentication and biometric login.
Engaging – Gamification and rewards for user activity.
Example: Monzo gained traction by offering instant spending notifications and budget-tracking features within its sleek mobile app.
5. Leverage open banking and APIs
Modern neobanks are API-first, meaning they integrate with multiple third-party services, such as:
Identity Verification (e.g., Onfido, Jumio)
Payment Gateways (e.g., Stripe, Plaid)
Credit Scoring & Risk Management (e.g., Experian, FICO)
BOS’s API-driven architecture makes it easy to connect with these fintech solutions, allowing neobanks to build a highly customized ecosystem.
6. Build a Strong Security Framework
Neobanks face increasing risks of cyber fraud and financial crime. Key strategies include:
AI-Powered Fraud Detection: Machine learning models to detect unusual transactions.
Transaction Monitoring: Real-time alerts for suspicious activities.
KYC & AML Compliance: Automate Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.
7. Plan your customer acquisition and growth strategy
A neobank without customers is just an idea. Effective marketing strategies include:
Referral Programs – Encourage existing users to invite others.
Content Marketing – Publish educational content on fintech trends.
Influencer & Community Engagement – Leverage social media and fintech communities.
The rise of neobanks signals a shift towards a more flexible, customer-centric banking experience. However, launching a neobank requires careful planning, compliance with regulations, and significant financial investment. With the right strategy and technology, entrepreneurs can tap into this booming industry and create a successful digital bank. If you’re looking to start your neobank journey, explore how BOS can be the foundation of your success. Contact us to learn more!