How to Build a Neobank From Scratch in 2024

Gone are the days when brick-and-mortar bank branches were the only players in the game. In today’s digital era, a new breed of financial institutions is taking over. The name of this breed is neobanks. Highly engaging and easy-to-use, they have made a revolution in the industry, offering a level of convenience and flexibility that traditional banks can’t match.

Interestingly, the concept of neobank emerged a while ago. This happened in 2015 due to the phenomenon of Open Banking, which allowed traditional banks and other financial institutions to share data and manage financial flows in a secure environment. 

Around that time, the first neobanks started to appear, with the UK and Germany introducing Revolut, Monzo, Atom Bank, and N26. However, the real wave in the digital realm happened in 2021. With pandemic restrictions, financial institutions, like no other sector, were motivated to create financial services that would make it possible to use banking online. 

To say that this move was seismic is an understatement. Within just one year, the global market size of neobanking jumped from $79.1 billion to $118.51 billion. And this is just the beginning of what neobanking can be. According to experts, the neobanking market will reach a staggering $2078.54 by the end of 2030. 

These numbers clearly indicate the increased demand for neobanks. If you’ve been thinking about creating your own solution, the timing couldn’t be better. With just 272 neobanks in the world, you have all the chances to ride this wave of growth and innovation by jumping on board now. 

In this article, we’ll guide you through the essential steps to build a neobank from scratch. From understanding the market and obtaining necessary licenses to developing a robust tech infrastructure and ensuring top-notch security, we’ve got you covered. 

What Is a Neobank and How Is It Different From a Digital Bank? 

Many use the terms “neobank” and “digital bank” interchangeably, but they aren’t quite the same thing. Let’s look more closely at the definition of “neobank” and how it differs from digital banking apps. 

Neobank apps

A neobank is a financial digital solution that operates exclusively online. It doesn’t have traditional physical branches and can be offered by any financial tech organization. A neobank provides a wide range of banking services, similar to those provided by traditional banks. The main difference is that these services can be very specific depending on who they are aimed at, and can only be accessed through websites and mobile apps.

Digital banks

When it comes to digital banks, these solutions can only be provided by traditional banks. Basically, it’s the extension of brick-and-mortar institutions, providing the same suite of services through online channels. As a rule, banks still maintain their physical presence, but they also offer an alternative way to access their services via digital platforms, saving users a trip to a branch.  

As you can see, the differences between the neobank and digital banks are tightly related to their origins and business models. To better illustrate these differences, let’s look at the comparison chart below:

Understanding these differences is essential when building a neobank. While both solutions essentially provide banking services, neobanks go further by offering unique experiences through cutting-edge technology. In other words, these are often completely new products that have not yet been seen in the financial world.

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Why Build a Neobank

Neobanks have shaken up the financial sector, challenging traditional banks with their innovative and customer-centric approach. Offering quick and hassle-free access to banking services, they are constantly attracting new users, primarily from the younger generation who actively use mobile applications and don’t like the bureaucratic nature of traditional banks. The stats reflect this trend. In 2021, there were 146.42 million neobank users. By 2028, user penetration is expected to soar to 386.3 million.

People are getting accustomed to the convenience and efficiency that neobanks offer and become more reluctant to use traditional banks. Major players like Revolut and Wise have already amassed millions of people! For example, Revolut boasts 25.5 million consumers worldwide, while Wise has grown to 16 million, processing around £9 billion in transactions on a monthly basis. N26 and Monzo, two other prominent neobanks, come close to Wise, counting 8 and 7 million users respectively. 

These numbers underscore the growing preference for digital-first banking solutions. Considering the rapid adoption of neo-banking, building a neobank is a strategic move to tap into a rapidly expanding market. With a fresh and customer-centric approach to financial services, you can position yourself at the forefront of fintech innovation, catering to the evolving needs of a tech-savvy customer base. 

“As the digital movement takes the globe by storm and the influence of Gen Z grows stronger, there has been a fundamental shift in the preferences and choices of the average banking customer. Customers are prioritizing convenience and an untethered access to their essential services at all times and that is becoming a requirement rather than a choice.”

Mr. Robert Hazboun, Managing Director at ICS Financial Systems Ltd.

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Advantages of Neobanks

Neobanks have transformed the financial space, giving a boost to the growth of digital banking users. Convenient and easy-to-use, they have become the favorite payment option for many consumers worldwide. Let’s look at some of the most prominent advantages that neobanks offer to consumers and businesses alike. 

• Lower operational costs. Unlike traditional banks, neobanks don’t have a physical branch to maintain, allowing them to operate with significantly lower overhead costs. These savings are passed to consumers in the form of lower fees for transactions, account maintenance, and other banking services. 
• Streamlined financial management. Advanced neobanks often come with features like real-time expense tracking, automated accounting integrations, and detailed analytics which help users analyze their spending and make better financial decisions.
• Faster transaction processing. With neobanks, there’s no need to queue for hours waiting for a payment to be processed. All money transfers happen virtually in an instant, helping businesses improve cash flow. 
• Innovative financial services. Neobanks often have it all, including advanced features such as multi-currency accounts, virtual cards, and integrated payment solutions, making them a preferred option for managing international transactions.
• Enhanced security. Neobanks implement cutting-edge security measures, including multi-factor authentication, biometric verification, and advanced encryption. These features protect consumers from fraud and cyber threats while keeping their financial data safe.
• Improved user experience. With user-friendly interfaces and mobile-first designs, neobanks are hard to beat when it comes to user banking experience. 
• Greater transparency. Another benefit of neobanks is their transparency in pricing and services. With clear and straightforward fee structures, consumers can manage their finances more efficiently without worrying about any unexpected charges. 
• Personalized customer support. Neobanks take advantage of AI technology, allowing them to provide customers with 24/7 support and constantly improve based on user’s interaction patterns. 
• Scalability. Neobanks can easily scale their services by adding new features and integrations to meet the evolving needs of their customer base. 
• Global reach. Neobanks often have a global reach, allowing users to manage international transactions more efficiently. This is particularly beneficial for businesses that have a global customer base or operate in multiple countries.

Must-Have Neobank App Features

While the functionality of a neobank may vary based on its purposes, there’s a bunch of features inherent for any neobank app. These include:

• Authorization with sign up and sign in options, allowing users to easily create accounts and securely access their financial information. 
• Biometrics such as fingerprint or facial recognition to ensure secure and convenient access to accounts and transactions.
• Know Your Customer (KYC) system to prevent fraud and ensure compliance.
• Personal account profile to allow users to manage their finances and change settings, including tasks like updating personal information, changing PINs, blocking/unblocking payment cards, or enabling/disabling notifications and alerts.
• Transaction history to help consumers easily track their spending.
• Onboarding to make the navigation of an app easier and smoother for new users
• Customer support to ensure the clients can get help whenever they have a query or face any issue while using the app. 
• Notifications to keep users informed about their account activity, payments, and other updates.

These are the key features a neobank can’t do without. However, building a competitive solution that stands out requires more than just basics. To take your solution a step further, consider implementing some cutting-edge features like:

• Cashback – this is a great feature to incentivize your product. By returning a small percentage of goods and services ordered by users through the application, you can enhance customer loyalty while also encouraging more frequent use of your app. 
• Referral system – like cashback, referral system feature is an efficient way to attract new customers through word-of-mouth marketing.
• Cryptocurrency – as crypto transactions become more common, providing users with the opportunity to process these kinds of transactions within the app is a strategic move that can go a long way.
• Tracker – with the help of a tracker, users can keep track of their spending, set financial goals, and recognize patterns in their spending behavior, allowing them to make better financial decisions.
• QR codes – people love QR codes for the convenience of payment. By incorporating a QR code feature in your app, you can reach more customers and simplify the payment process, making it quicker and more secure for in-store and peer-to-peer transactions.
• Stocks – another nice-to-have feature is stocks that can help users interested in investing buy and sell stocks directly through the app.
• Instant loans – offering instant loans or credit lines can be a game-changer. Users can apply for and receive loans quickly, often within minutes, without the need for extensive paperwork.
• Bill reminders – integrating bill reminders ensures that users never miss a payment. This feature can send notifications for upcoming bills and allow users to schedule automatic payments, reducing the risk of late fees.
• International transfers – the feature of international money transfers can attract users who need to send money abroad frequently. Consumer-friendly neobank apps offer competitive rates, making them a go-to alternative to traditional banking services. 
• Budgeting assistance – offering users a suite of services tailored to improving their financial literacy can add more value to your app while also making it more engaging and attractive to them. 

Obviously, these aren’t the only features that can be integrated into your neobank app development. The more creative and innovative you get, the higher the chance that your neobank will stand out in a crowded market and pay off with good returns. 

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Business Models for Neobank Applications 

There are a few business models that neobanking applications use as revenue streams. Understanding these models can help you choose the approach that aligns best with your goals. 

Transaction-based revenue model

Neobanks often earn revenue from transaction fees paid by customers whenever they make a purchase through the app. This model is best suited for businesses with a large user base, as the revenue stream is directly related to the volume of transactions. One of the best illustrations of the success of this approach is Chime, a famous US neobank. Serving over 7 million users and processing $8 billion monthly transactions, even a modest 1.5% fee yields $1.5 billion in annual revenue for them.

Credit-based revenue model

Neobanks can also generate income through offering credit products like credit cards and personal loans. By offering competitive interest rates and flexible repayment terms, they attract customers looking for accessible credit solutions. This model not only opens a new source of revenue but also helps with building trust with customers and improving retention rates.  

Interchangeable fees revenue model

A lot of neobanks make money through interchangeable fees that merchants pay for each transaction made using their debit cards. In practice, every time a user makes a purchase with a Visa card, Visa adds a small fee. Then, this fee is split between the merchant and a neobank. This is a very popular revenue model due to the growth of digital payments worldwide. Just so you can better grasp the scope, the number of digital transactions has long surpassed 700 billion and is expected to reach US$16.59tn in market value in 2028.

Subscription-based revenue model

Some neobanks use a subscription-based revenue model, offering advanced services or features for a specific fee. These subscriptions often include perks like higher transaction limits, priority customer support, and access to exclusive financial products, catering to VIP clients. The beauty of this model is that it fosters recurring revenue and enhances loyalty by offering value-added services. 

Partnership and integration revenue model

Besides these four, neobanks can earn money through partnerships and integrations. By collaborating with other financial companies, they can offer additional services and earn a share of the revenue generated through these partnerships. This model proves particularly helpful for those planning to expand their service offerings without making significant investments. 

Which model to choose depends on your strategic goals, target market demographics, and competition. If you’re not sure which route to take, don’t shy away from taking a sneak peek at your competitors. This will give you an idea of what they’re doing to monetize their applications and help you make the right choice.

How to Create a Neobank App From Scratch in 9 Steps

By and large, neobanking app development isn’t much different from other types of app development. Like with any other application, you’d need to go through several essential steps. Ideally, you want to get equipped with a professional team of developers experienced in creating neobanks. This will help reduce potential errors and ensure that you have the needed expertise and tools to ensure the success of your neobank application.

Now let’s dive into the intricacies of neobank app creation. 

Step 1. Conduct market research

The first step is always to conduct thorough research. You need to understand the current trends in the market, what products and services are already there, and how well they are doing. Look at the strengths and weaknesses of other neobanks in your chosen niche. Think about how your solution can fill the gaps and stand out. Ask yourself:

• Who are the main competitors in your target market?
• What are the pain points of neobank users?
• What features and services are most in demand?
• How can your neobank offer a unique value proposition?

Answering these questions will help you build the right strategy for your neobank development and ensure that the end product meets real user needs. At this point, you should also estimate the timeframe it would take you to bring your product to life and the cost of development. If building a neobank is your first rodeo, it might be helpful to run this stage together with business analysts and the development team, who can help with project estimation. 

You should also decide whether you want to follow in the footsteps of Revolut and build your neobank on 100+ back-end and web apps to support its features and administer the app, which is what you’d need to do if you decide to create a neobank from scratch. Alternatively, you could take a route of Chime and partner with a bank to skip all this back-end stuff. You could also look in the direction of BaaS services. Basically, these are bank-as-a-service providers that have all the required infrastructure to function as a backend for your neobanking app and act as a merchant between a business and a bank.

By doing a thorough research of the market, you can better prepare yourself for the competitive landscape of neobank 2024 and make well-informed decisions.

Step 2. Define your unique selling proposition (USP)

Based on your market research, decide on what will set your solution apart from the competition. Your unique selling proposition could be anything from innovative features, better interest rates, top-notch customer service, or a unique user experience. 

To come up with a strong offering, it’s essential to understand your target audience. For example, if you’re targeting youngsters who love to travel, you should be looking into adding services like fee-free international transactions or attractive currency exchange rates. On the other hand, if you’re tailoring your app for tech-savvy millennials, you may want to focus on advanced security features, cryptocurrency support, and integration with other tech platforms. 

Again, there’s nothing wrong with taking a look at what your competitors are doing. No app is perfect, but when you know what they lack, you equip yourself with important knowledge that can help you create a compelling product and enter the neobank market with finesse and grace.  

Step 3. Choose an IT partner

To start a neobank app from scratch, the best thing you can do is hire an experienced software development company that offers extensive app development services. Since developing fintech solutions is a laborious and expensive process, having professionals by your side will prevent costly mistakes and increase your chances of creating a successful neobank solution. 

Of course, it’s easier said than done. The market is overflooded with IT vendors, all claiming to be the best in the field, which makes the choice of the right vendor quite challenging. But don’t just take their word for it. Take your time to research and shortlist companies that have a proven track record in banking software development. Check their portfolios, read reviews, and look for case studies to get a grasp of their development expertise. Ensure that the company you hire has the knowledge of financial regulations and legislation and is proficient in areas such as blockchain, AI, and cybersecurity. These are all important steps that will help you sift through the many options and find a tech partner in alignment with your project goals.  

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Step 4. Ensure industry compliance

While developing a neobank from scratch, the most important thing is to ensure that it complies with fintech and banking regulations. Make sure to go through the standard requirements before diving into the development process. Mind that these requirements will vary based on the country in which you’re going to conduct business. 

For example, in the USA, you need to comply with regulations such as the Bank Secrecy Act (BSA), Anti-Money Laundering (AML) laws, and the Dodd-Frank Act. You will also need to work closely with federal and state regulators, like the Federal Reserve, FDIC, and state banking departments, to obtain the necessary licenses and approvals.

If you’re planning to launch your neobank in the European Union, you’ll need to ensure compliance with the Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR), which are designed to protect consumer data and ensure secure transactions.

Asia and other regions have their own sets of regulations. For instance, in Singapore, the Monetary Authority of Singapore (MAS) oversees financial institutions, while in India, the Reserve Bank of India (RBI) has specific guidelines for digital banks.

Learning the law governing the banking industry of your region is critical to avoid any legal pitfalls and ensure the credibility of your business. 

Besides, you will also need to obtain the right license. Unlike a few years ago when it was necessary to have a full banking license to run a fintech platform, the rules have changed. Now it’s often enough to be a holder of an EMI (Electronic Money Institution) or PI (Payment Institution) license to operate. These licenses allow you to provide many of the services offered by traditional banks, except for giving loans and accepting deposits from the public.

Here’s a quick breakdown of the distinct features of EMI and PI:

So, if obtaining a traditional banking license isn’t an option, you’ve got at least two other alternative routes to break into the market. Speak to your vendor or financial advisors to determine which license is the most appropriate for your neobank. Interestingly, Revolut is one of the few neobanks that challenged the norms and became successful without obtaining a license. Only this year, they should be getting a UK banking license, enabling them to offer loans and credit cards to the UK customers, the services they’ve already been doing in Europe.

Step 5. Create a design

To create a neobank that appeals to customers, prioritize user-friendly design. Look at Revolut and Chime as examples. Despite the complex logic, these two prominent solutions have intuitive user interfaces that are easy to understand even by someone who isn’t exactly tech-savvy. Provide your development team with references to the platforms whose design you like, but don’t just copy them. It’s important to inject your brand’s look to stand out in the crowded fintech space. If possible, try running a few user surveys or focus groups to understand what customers like in a banking app and, based on your findings, reflect these preferences in design. 

Start with wireframes to get the vision of your app’s layout. Once that’s done, move on to creating a detailed mockup that includes all colors and visual elements that will be placed in the app. Your application should not only have a visually appealing design, but it should also have an easy-to-follow flow, allowing people to start using your neobank in a minimum number of steps. 

See how we managed to achieve a seamless interconnection between the hardware device and the neobank POS application

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Step 6. Choose tech stack

Picking the right technologies is crucial when building your own neobank app. Your development team is key here – they’ll help you choose the best mix of programming languages, frameworks, and tools that fit your needs.

In general, we recommend using Node.js and React for the web version of your neobank. These tools are great for their efficiency and ability to manage lots of tasks at once. For the mobile version, React Native is a top choice. It allows app developers to ensure consistent performance across iOS and Android devices using the same codebase. That being said, there are no perfect technologies for a neobank as each of them can work depending on your specific requirements and goals.  

Beyond just the tech itself, think about things like security features, where you’ll store your data (e.g., on cloud services), and how other services will connect with your app. Working closely with your development team ensures everything fits together smoothly and meets your goals.

Step 7. Prototype

When it comes to neobanks mobile app development, prototyping is essential. Start with MVP development by including only the most important features like authorization, user’s page, KYC, account history, payments, and transactions. This will help you validate these core functions, understand the demand, and gradually refine your app based on feedback gathered from users early on. It will also help minimize the risk and cost of developing unnecessary features and save you resources and budget.

Step 8. Develop

Once the MVP is tested, you can move on to creating a fully-featured solution. It typically takes about 4-6 months to build a neobank app, although the time frame can vary slightly depending on factors such as the complexity of the application, the development team composition, and the resources, skills, and experience available. 

You may decide to choose to integrate certain finance plugin-ins into your systems instead of building them in-house, which could be a great solution for smaller banks. Implementing finance integrations can reduce time-to-market as well as provide you with peace of mind regarding safety of your product, as these plugins are already regulatory compliant – no stress or penalties to worry about. 

Moreover, using plugins is a cost-effective solution. Since you pay here by transaction, the cost scales with your business. This way, you can better manage expenses and, as you grow, gradually remove the third-party service with your own solution to offset the costs. 

That being said, paying per transaction might be the best solution for larger banks, as they would need to pay a lot of money. In this case, it’d be more practical and cost-effective to build these features in-house.

“I know a couple of startup banks that went down this approach, and they are still using the plug-ins, but in the next few years plan to build their own bank end versions, so they can save money ongoing. There is a fine line here, as you have to be making enough money to build it yourself, to offset the ongoing cost of the third party, and as such initially where a bank is starting out that’s obviously not possible!”

Bruce Mason, Delivery Director at QArea

Step 9. Test your software

Before your application can be released to the public, it should be tested to ensure it contains no errors and works efficiently. When it comes to neobanking solutions, running automated tests is the best strategy. Just think about all possible scenarios that may happen on a user journey – manual testers simply won’t be able to cover all of them. 

However, this doesn’t mean you won’t need QA engineers. You will still need to have someone to do exploratory testing to uncover bugs that might have been skipped in other tests. But ideally, these should be the people who can also write code and conduct automated tests. 

Here are a few tests that are usually run in parallel with neobank mobile app development:

• Unit testing
• Integration testing
• Penetration testing 
• Security testing
• Regression testing
• User acceptance testing
• Performance testing

“Many teams focus heavily on functionality, UI/UX, and security of the app, and rightfully so, as these are critical aspects of a neobank application. The problem being, they are so laser-focused on these aspects that they’re often caught off guard when an influx of new users suddenly puts their systems to the test. This is why load and stress testing are essential in the development process.”

Michael Tomara, Lead QA Engineer

Having a professional team of QA engineers experienced with using automated testing tools will ensure thorough testing coverage and give you confidence that your neobank app meets high standards of reliability and performance.

Also, you may want to consider using regulatory sandboxes. Regulatory sandboxes allow for testing the app in a controlled-risk environment without the need to fully comply with regulations, making them ideal for young fintech companies.

Using a sandbox is a great way not only to learn more about the hurdles associated with a full-scale public release but also to test disruptive technologies and innovate.

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How Much Does It Cost to Develop a Neobank

The cost to build a neobank isn’t fixed and varies based on several factors, including your team’s location and the number of features and technologies integrated into the app. On average, developing a fintech solution takes about 18 weeks, which brings us to about 1543 hours. This estimate doesn’t include the work of a project manager or any unexpected fixes that may arise along the way. 

To estimate neobank development cost, consider the average rate for local app developers with expertise in fintech development. According to Geniusee, it ranges from $75 to $135 per hour. Given that the app development process is a major part of the project, you should be looking at a price tag of $200,000 and more.

Alternatively, you could consider outsourcing. In this case, the neobank app development cost could be reduced significantly since you wouldn’t have to invest in office space, equipment, and other infrastructure necessary for maintaining an in-house team. Moreover, most mobile app developers in countries like India, Ukraine, and Brazil charge considerably lower rates anyway, making them an attractive point of destination for outsourcing. The key is to find a reliable neobank development company that knows the business and understands your needs.

Challenges and Risks in Neobank App Development

As you can imagine, creating a neobanking app isn’t always a smooth ride. With so many restrictions and regulations, navigating the development process requires a strong grasp of the banking industry and the know-how in handling hurdles. However, the devil isn’t that black as they say. When you know what kind of risks and challenges may arise along the way, you can better prepare to tackle them.

It can be difficult to differentiate your neobanking app 

One of the biggest challenges is to build a neobank that stands out from the rest. There are already hundreds of fintech apps on the market, and many of them offer very similar features, making it difficult to come up with a truly unique solution. 

However, without a strong value proposition, your chances of breaking into the industry are pretty slim. If you can’t lure potential consumers to your neobanking mobile app with a unique offer, they’ll likely stick with the option they’re already used to or the one that offers the lowest fee rates.  

The existence of your neobank mobile app directly depends on your partners

Building a successful neobank app almost always involves partnerships with BaaS providers who help implement core banking services such as payment gateways, card processing, and regulatory compliance. The flip side of the coin is that partnering with third-party vendors means being reliant on them. If something goes wrong with the vendor, it will immediately affect the performance of your app. 

“Practice has taught me that anything vital for the business is to be done on your own. Partners do limit you. Everything should be agreed with them since they are the holders of the license and responsible for all the regulatory matters. Under such circumstances, the partner impedes the company’s development, especially when its ambitions are much greater than the partner’s.”

Vlad Yatsenko, Co-Founder of Revolut. 

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With this in mind, be sure to thoroughly research available suppliers and don’t put all your eggs in one basket. It’s a good idea to use different providers for different services to avoid total dependency and to have a backup in case the primary provider fails. A neobank app requires robust partnerships to ensure seamless service delivery.

Dependency on APIs may lead to downtime

Building a neobank in-house is an expensive venture that may be beyond the means of most companies. That is why a vast majority of neobanks use APIs of third-party providers to reduce costs. Even a famous Revolut relied on Wirecard and PaySafe card issuer providers in its early stages before they became card issuers themselves. 

However, as great as APIs are, relying on third-party APIs almost always introduces a challenge: potential downtime and service interruptions. When you rely on external systems, any hiccup on their end – be it a technical glitch, a service issue, or an update – can impact your app’s functionality and cause it to run slowly. That’s the reality of relying on external providers. 

To mitigate this risk, it’s crucial that your development team sets up rigorous monitoring and alert systems to detect API-related issues and resolve them before they break the functionality of your app. Furthermore, be sure to choose from reliable providers with a track record of uptime. Some good names are Deserve for credit cards, Evolve for program banks, Clickswitch, Nova Credit, and Upstart for ancillary services, among many others. 

Hopefully, one day your neobank will grow and you’ll have in-house capabilities for core banking services, but before that happens, choosing the right API provider will be one of the most crucial decisions you’ll make.

Becoming profitable is a steep hill 

While neobanks have an indisputable advantage over traditional banks when it comes to convenience, many of them struggle to become profitable. This happens for a few reasons. First, acquiring new customers is rather costly. Without a good strategy, customer acquisition costs can quickly spiral out of control and eat a good chunk of profit. Secondly, the amount of revenue per customer account isn’t very high. And lastly, neobanks aren’t the best platforms for offering cross-selling products, making it difficult to diversify revenue streams.

To overcome these issues, it’s important to strategize your business model from the get-go and ensure your neobank is optimized for the target audience. Also, consider partnering with reliable financial providers to provide your customer base with value-added services.

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Regulatory Compliance 

Regulatory compliance is a complex aspect of mobile banking app development that requires constant attention. For example, a while ago, you would only be allowed to use licensed frameworks to create a neobank app – if anything happened, the responsibility could be traced back to the licensed provider. Today this is no longer mandatory. As long as you have a partner or a license, you are good to go. 

However, this doesn’t mean that the rules have become more relaxed. Quite the opposite. The scrutiny of the regulatory environment becomes more stringent every year, making it crucial to pay particular attention to the compliance. Here’s what’s happening on the landscape of neobank regulations:e

• New international standards. In response to the 2007-2009 financial crisis, regulators around the world introduced more stringent regulations to protect consumers and ensure the safety of the financial system. A case in point is the well-known Basel III framework. Developed by the Basel Committee, it sets out reform measures for bank capitals, regulation improvement, and risk management, strengthening the overall resilience of the banking sector. And although these standards are primarily intended for larger financial institutions, neobanks, just like any traditional banks, must comply with them as well.
• Enhanced customer data protection. As digital banking becomes more popular, regulators have ramped up data protection standards to ensure customer information is secure. Regulations like the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the U.S. dictate that neobanks, as well as all other companies dealing with financial data, protect their customers with the highest level of security. This includes using encryption technologies, regularly updating security protocols, and ensuring customer consent is obtained before using or sharing their data.
• Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. AML and KYC standards are becoming tougher and more sophisticated. Neobanks are required to implement advanced identity verification methods to prevent money laundering and financial fraud. This often includes biometric verification, real-time transaction monitoring, and enhanced due diligence for high-risk clients. Non-compliance with these regulations can lead to massive fines, legal issues, and potential damage to a neobank’s reputation.
• Constant updates to regulatory frameworks. As financial technology advances and new banking products emerge, regulators are consistently updating frameworks to ensure they cover these innovations. For neobanks, this means staying on top of regulatory changes and working in line with them to remain compliant. For example, neobanks offering cryptocurrency-related services must comply with the rules about digital asset management, AML, and taxation. In some cases, this could mean obtaining additional licenses to legally operate in certain regions. 
• Cross-border compliance challenges. Companies looking to expand internationally need to have a deep understanding of the complex regulations in different countries.  Each jurisdiction may have its own banking, privacy, and consumer protection laws that may differ significantly from those in your home country, and understanding the different regulatory environments is essential to ensuring smooth operations across all markets.  

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Neobaning App Development: Future Trends 

The neobanking market is evolving at a rapid pace. If first applications were quite limited, most modern development solutions aim to provide a complete alternative to traditional banking, offering a wide range of services from opening accounts to international transfers. However, we are still standing at the foot of a mountain of opportunities yet to be revealed in this area. While we can’t tell for sure what will happen in a few years time, some of the trends are already shaping neobanking. Let’s see what they are.

Partnerships between neobank and traditional banks 

Once fierce competitors, today, both banks and neobanks are realizing the benefits of working together. For banks, partnering with neobanking apps means leveraging innovative technology and offering their customers a digital experience. Neobanks, in turn, can benefit from the existing customer base and regulatory compliance, shortening their time to market and avoiding many of the complexities associated with financial regulations. 

This trend is already gaining traction. For example, banking as a service and white-label digital solutions have emerged as a result of such collaboration. In the years to come, we’re likely to see many more of such strategic alliances. 

Artificial Intelligence and Machine Learning will drive neobank development

Artificial intelligence (AI) and Machine Learning (ML) continually drive innovation, playing a crucial role in the evolution of neobanking. The insights provided by AI and ML will enable neobanks to provide personalized customer experiences and make it possible to cross-sell additional financial products that best match their customer’s goals. 

While this trend is still quite new, many neobanks have already started implementing AI and ML, allowing them to scale and make good profits. This trend will continue in 2025, with many digital banking platforms trying to quickly jump on board. 

“Innovation is the hallmark of Neobanks, and there are new facets emerging every day, including cutting-edge technologies like AI and blockchain that are utilized to significantly improve customer experience and meet the demands of their daily lives. There is no doubt that the benefits of Neobanks far outweigh traditional banking when it comes to convenience, so much so that this is often the decisive factor in choosing one bank over its competition.”

Mr. Robert Hazboun, Managing Director at ICS Financial Systems Ltd.

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Open banking is revolutionizing fintech

Since open banking has enabled businesses to use banking APIs, neobanks have undergone significant transformation. Neobanks can now connect with various financial products such as investment platforms, insurance services, accounting software, expanding the range of services available to customers. This trend will define the next couple of years.

“This will be a big move towards “digital”. Big banks will start closing down their branches, cash is going to come under pressure, and we’ll have far more mobile wallets and using plastic debit cards.”

Anna Boden, The Founder and CEO of Starling Bank

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Neobanks will embrace the integration of blockchain and cryptocurrency 

Crypto space is growing quickly. In just one year, the number of crypto owners surged from $432 million to $580 million, highlighting the interest of people in the crypto market. As the number of crypto users grows, so does the demand for fintech solutions, and neobanks will be the first to address this need.

Neobanks are gearing up to offer new exciting services like yield farming, where customers can earn higher returns on their investments, and crypto-backed lending, which provides flexible borrowing options. They’ll also introduce tokenized assets and automated smart contracts to streamline financial transactions—all conveniently accessible through neobank apps.

Blockchain isn’t just about money though. It’s also changing the way we verify identities, making it safer and faster with decentralized records. Transactions will speed up too. Plus, blockchain will facilitate cross-border payments, making them quicker, cheaper, and more secure for anyone doing business internationally. 

“The future of neobanks is definitely looking bright, but it doesn’t mean it’s going to be all smooth sailing. On the one hand, people all over the globe are getting more accustomed to managing their money with just a few taps on their phones. It’s easy, quick, and convenient. On the other hand, the risks of hacker attacks, fraud, and other criminal activities are also growing. To remain competitive and not lose customer loyalty, neobanks will likely face more stringent requirements and regulations and require even more rigorous testing than now.”

Michael Tomara, Lead QA Engineer

Summary

Without a doubt, neobanking is set to thrive in the years ahead. Offering innovative features and enhanced customer service, these digital-first platforms challenge traditional banks and transform the financial industry. However, building a neobank isn’t a small feat. To launch a neobank app that meets the needs of modern customers and complies with regulations, you need a good understanding of both technology and the financial industry. You also need to know your consumer pain points and market gaps to come up with a compelling product that can overshadow existing solutions.

The good news is that you’re not alone. With a robust neobank app development company like QArea, your journey can be made a lot easier. Our team excels in development and deployment of fintech products and can help you build a neobank app that will disrupt the market. Whether you want to develop a neobank app from scratch or looking to revamp an existing platform, our experts are here to guide you through the development process and ensure the success of your neobank.