Feb 13, 2022

How to Start a Digital Bank: 9 Things You Need to Know

Anastasia Kryzhanovska,
Marina Sharapova

It’s hard to say, without looking up on the Internet, when exactly the digital world has gained momentum and filled out every part of our lives. Now, you can work online, shop online, and even study online — it’s easily accessible. You can pay for practically anything over the Internet and your smartphone and it’s no wonder digital banks have started emerging.

There is a rapidly growing demand for independent digital banking solutions, especially in metropolitan areas, capital cities, and among Millennial and digital-savvy population, who are used to doing everything on their phones with just a few taps of the finger.

Find all the essentials you need to know on how to create your own online bank, about the digital segment of the industry, key points to consider, and the software production process in this article. So let's find out how to build a digital bank from scratch step by step.


The rising star of FinTech: Digital banks and services

Banks are quite a conservative niche, yet with so many industries going online, even the financial services caved into the popular demand and convenience. The idea of building a digital bank is to move the traditional activities and services to the web and reduce or remove the need for an individual to be physically present in a bank.

The underlying trend of today’s technology and lifestyle is simplicity and convenience. And that is exactly what digital banks are all about — make banking fast and simple.

What does it take to build a virtual bank? Later, we will discuss the essentials to consider when starting an online bank. But first, let’s learn about the trends and technologies used in digital banking.


  • Virtual cards: a representation of your actual card that can be easily disposed of if something happens to it. For example, if a virtual cards is hacked, you can delete it and create a new one, while the real cards won’t be compromised in any way. It is used for more convenience of transactions and security.
  • Automation of customer interactions: text and video chats are already a must for banking institutions; the next step is to use AI to power the chats (e.g. Cleo). Automation helps reduce staffing costs by minimizing interaction with humans only to when it is absolutely necessary — why spend human work time on answering simple, routine questions.
  • Contextual banking: makes financial operations more cohesive and manage them from a single platform by connecting the bank account to an online accounting system. In terms of convenience, it's exactly what a modern consumer wants — use a service that works, not think of how it works.
  • Cashless mobile banking: this trend is one of the quickest growing and popular trends. Mobile bank is the choice of the younger generation. They strive for the convenience of pinging smartphones against a connected device instead of the hassle of carrying cash and waiting for change.
  • Cybersecurity: consider the newest fraud-prevention technology before you make your own bank. For example, machine learning models based on real-time insights are used for detecting fraudulent activity. You can also implement device fingerprinting where the system, based on a number of parameters, identifies whether a device has been used in fraud-related activities.
  • Collaboration instead of competition: Fintech companies, and especially the BigTech firms (such as Amazon, Google, Apple, and Facebook), pose a threat considering the younger generation might be rejecting banks altogether. It is wiser to form partnerships and invest in Fintech.

Types of digital banking services

  • Opening accounts (debit/credit, savings);
  • Processing credit and debit cards;
  • Issuing virtual cards;
  • Personal, home equity, and business loans, etc.;
  • Payroll and deposit services;
  • Downloading eStatements;
  • Checking the balance;
  • Paying the bills;
  • Transferring funds;
  • Updating personal information.

Online banking is the future and it’s important to build high-quality digital banks and online financial services. How can you do that? Let’s discuss all the important details you need to know and keep in mind when starting a digital bank.

What does it take to build a virtual bank? Key points to consider

1. Your target audience

There's no news in that you should do a target audience analysis but what kind of information do you actually get from it before you build a bank and how is it useful? What kind of services your potential customers usually use; what they like or dislike about the services they previously received; what they worry about when using the Internet or making payments online — asking these sort of questions is the first thing any digital banking entrepreneur would do (Note: Read more about payment gateway comparison).

But, what’s more important, about this stage is to get factual data and conduct statistical analysis. Only this can help you launch a successful product. Here’s what you can do:

  • Form a focus group and a list of questions that you need to be answered, before you start your own bank online, in order to get it right.
  • If you are not confident to do it on your own, find an agency that does research and statistical analysis.
  • Build predictive models for possible consumer behavior.
  • Use social media networks and forums. For example, on Reddit, you can post questions, chat with potential customers, and learn what their struggles are concerning digital banking services.

Target audience analysis helps you figure out important details about their desires and needs which are necessary to know before developing a bank.


2. Competitors analysis

Target audience analysis also answers the question “who your competitors are”. It’s an important detail you absolutely need to know before you start a digital bank. More than that, you need to:

  • Create a list of criteria and a scoring system to evaluate your competitors;
  • Study their strength and weaknesses;
  • Find out what technology they use and how they market their products;
  • Analyze what their customers think about their services, good or bad;
  • Compare your digital banking ideas to competitor products.

Analysis of your competitors can help you successfully create a digital bank value proposition — a statement of your benefits, of why customers should use your services, and how you are going to solve their problems and improve their lives.

3. Creating a bank MVP: definition and value

An MVP is a version of a product that allows you to collect sufficient data in order to learn how potential customers interact with your product. In essence, it is a business concept focused on:

  • Learning how consumers interact with your product without having to fully develop a digital bank;
  • Making corrections and improvements at the early stages, while you have spent a limited amount of money, time, and effort;
  • Deciding whether your future product has potential (it’s common practice to reassess goals or completely abandon a project).

What an MVP is not. It’s not a limited functionality prototype since that won’t give you enough data to learn. It’s also not a Minimum Marketable Product (MMP) or Minimum Marketable Function (MMF) since those are focused on earning and not learning. It would, moreover, be a mistake to focus on the “minimum” apart from the “viable”, when building a bank, since that will not give you sufficient information for assessing whether consumers would use your product.

4. Types of business models

Another thing you need to figure out before you start a virtual bank is how your product is going to be structured. Here are the four most prominent types of digital banking business models.

Aggregators — distributing financial services from an ecosystem of partners. If you decide to build a virtual bank on this model, you will:

  • Reduce the costs of manufacturing the services.
  • Offer more kinds of services that a bank alone can’t, including non-financial service.
  • Provide your partner banks with advice on better financial decisions based on the data aggregated from your clients.

Open platforms — open banking APIs; a strategy that facilitated value exchange, expands the customer and partner bases and gives more opportunities for acquiring capital. If you want to build a bank on this model, keep in mind that there are four main platform banking models:

  • Proprietary: single sponsor and single provides; APIs are used as a mediator between of developers (give access to data) and customers (give access to the final product). Note: Read more about api development services.
  • Licensing: single sponsor and many providers; provides a visible interface for consumers and developers.
  • Shared: many sponsors and many providers; multiple partners control the development process.
  • Joint venture: many sponsors and single provides; a shared interface that encourages collaboration among sponsors (e.g., fintech companies).

Banking as a Service (BaaS) — a cloud-based model where tech companies can operate as banks after acquiring appropriate licenses. If you consider building a bank on the BaaS model, you should know that it has several layers:

  • Infrastructure as a service (IaaS): on-demand Fintech and other services (e.g., lawyer or accountant service); it involves hardware and a server for communication.
  • Banking as a platform (BaaP): a fully licensed platform or bank that other businesses use for providing their services.
  • Fintech SaaS: on-demand financial services provided via BaaP; it also allows to plug in services provided by other banks (e.g., from traditional banking).
  • Human as a service (HuaaS): a behind the scenes, top layer that represents the services provided by the Cloud workers.

Traditional universal banking — a model in which traditional banks create a digital bank solution (providing all or individual services). This is usually made to improve customer service for clients who prefer using the Internet or don’t have the time to be physically present in the bank.


Financial services are tied on legislation. Therefore, you need to study the laws pertaining to banking and digital solutions in your country or the region you will distribute them in. Maybe even consult a lawyer before you build a virtual bank. Here are some things to read up on considering when you make a bank in the digital environment:

  • Digital signature — a way of verifying a person over the Internet; the very thing that makes online financial services possible. Find out how your future consumers can acquire a digital signature and what protocols you need to use it in your digital bank.
  • Digital environment. The financial system does not always develop as fast as the digital environment. You need to create a virtual bank that will allow your consumers to stay within the law.
  • Payment Services Directive 2 (PSD2) — the new requirements for customer authentication which take effect in September 2019.
  • General Data Protection Regulation (GDPR) — the legal framework you need to consider before starting a bank. It was developed for protecting EU citizens and residents that all companies operating in EU should comply with.
  • Payment Card Industry Data Security Standard (PCI DSS) — for handling branded credit cards and addressing security threats. According to the standard, you need to have multi-factor authentication.
  • New York State Department of Financial Service (NYSFS) — controls data protection in many different banks (around 1,500) and financial institutions, including international ones.


How to start an online bank business when there is so much competition? Is it wise to compete with banks that already have a large customer base and can capture their attention even stronger by putting out online services? What startups struggle with the most is getting distribution, before the established companies get innovation. So, you need to know about the ways you can beat them to the punch.

Core banking, new financial products, insurance, and investments. It’s hard to compete with banks in what they already offer. But you have a good chance at succeeding if you can build a digital bank to provide services that banks don’t do (such as invoice financing or property speculation).

That is why you have to research and analyze the market (target audience, competitors, and demand). So you can find segments, define solutions that consumers will benefit from in the future, and drive the innovation.

7. Choosing the developer team

Once you have covered all the details of your project on paper, the next logical step is to assemble a team that will develop a digital bank for you. But how can you go about doing that? First, you need to figure out what kind of team you need:

  • Do you need a team full time?
  • What is your budget?
  • Can you pay monthly salary?
  • How big is your project now and how much bigger it is going to get?
  • How long should it take to build a digital bank?

The answers to these questions will help you understand what kind of team you need. The most common options are:

In-house developers

Banks usually hire specialists, but surely it’s not necessary, not for banks, nor independent Fintech companies (big or small) to have an in-house developers team. You can start a bank by hiring freelancers or an independent developer team. Moreover, hiring in-house developers is a long process which involves figuring out who you need and whether the candidates suit your requirements. You can hire a recruiting agency but that is additional expenses.


You can also develop a virtual bank by hiring freelancers. And while it is much cheaper, a lot of companies that go for the cheaper option, run into several problems. From experience, we know that:

  • You have no guarantees they actually specialize in creating a bank or Fintech solutions;
  • Freelancers tend to delay the deadlines and turn in poor-quality work if any;
  • It’s hard to establish teamwork among freelancers, and not many entrepreneurs know to keep note of that;
  • You run the risk of encountering incompetent developers who might also disappear without a word of acknowledgment.

Technical partners

There is also the option of finding a technical partner, a.k.a. a software development company or agency. They have well-established developer teams, that usually specialize in a specific industry. Still, to make a bank, you need to make sure the team you partner with has successful experience in the Fintech industry.

It’s important that you weigh out your options before you start a digital bank and choose the right one for your project so you don’t waste time or effort in the process. In any case, whether it’s a freelancer, an in-house developer or a whole developer team, you should first study their portfolio.

At Gearheart, we have developed many successful projects, including different banking services. We can create a fraud-proof platform for you with features for issuing cards, doing background checks, signing checks, and scanning documents.

8. Marketing campaigns

The goal of any business, from a financial standpoint, is income. How to make an online bank profitable? For that, a business needs clients and ways of attracting them. Marketing takes up to 20-25% of total expenses and for some businesses, and, at the same time, your first campaign should launch along with the product launch. That’s quite a big budget line. Here, you have to be smart about setting up the first campaign.A 2018 survey shows that most financial marketers see the biggest opportunity in optimizing customer experience. And if we go back to our digital banking trends and target audience analysis, you will see that consumers do, in fact, lean toward convenience and speed.It’s important to build a digital bank marketing campaign, as much as your product, around making financial services as easy and understandable for the consumer as possible.It is also important to incorporate AI into your marketing campaigns: to optimizes, automate, test, and personalize them. Data-driven marketing will help you surface the right information when it’s needed.

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Now that you know your target audience and competitors from A to Z, you have decided on the technology, model, and type of project you are going to launch and how you are going to market it, you can now ship your requirements to the developer team.

When outsourcing web development, you should be aware of the peculiarities of the development process. is an Agile software development team specializing in custom-made web and mobile apps. We base our work on Scrum, continuous integration, and sprints (small iterations) to provide our clients with the most stable and productive results.

Each sprint consists of the preparation, development, stabilization, and deployment stages. So, before we develop a virtual bank for you or start any task, our business analyst gets in touch with the client and:

  • Makes sure that we understand what needs to be done;
  • Verifies that we have the needed resources; and
  • Plans the sprint.

Then, developers work independently, deploy and make bug fixes. At this stage, the client’s input is rarely needed, but you can always monitor the process via our task management system.

How Much Does It Cost to Start a Mobile Bank Development

When wondering how to start an online banking company, you may wonder how much this process will cost. The cost of creating a mobile banking application is heavily dependent on many factors. To get a rough idea of what it will take to build an app from scratch, you can look at the typical salary for software developers, the number of people involved in a project, and the duration of that project.

Please note that the final cost will also include the preparation phase, time for QA, as well as fees for third-party services. Besides, expenses are highly dependent on the country where your development team is located. For example, in the US and Eastern Europe, developers' hourly rate varies greatly, but the quality remains much the same.


Take a look at the GoodFirms Research for a better understanding of how app development pricing is formed and how you can start an Internet bank within your budget.


Wrap up

We hope that the time spent reading the article was compensated for you with a basic understanding of how to create an online banking system. All said and done, the rule of thumb here, before you start a virtual bank, is to weigh out all your options, all the pros and cons considering your digital bank requirements and business plan. And don’t miss out on statistics and factual data.

You can contact and consult with our business analyst. How long should it take to create your own digital bank? We will help you estimate the time frame, figure out what technology and bank’s features you need to achieve your project goals, as well as give an estimate on the price.

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