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 a virtual 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 start an online bank step by step.
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.
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.
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.
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:
Target audience analysis helps you figure out important details about their desires and needs which are necessary to know before developing a bank.
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:
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.
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:
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.
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:
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:
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:
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:
How to start your own online bank 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.
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:
The answers to these questions will help you understand what kind of team you need. The most common options are:
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:
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.
The goal of any business, from a financial standpoint, is income. How to make a 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.
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.
What is the development process like in Gearheart?
Gearheat.io is an Agile software development team specializing in custom-made APIs and web 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:
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.
When wondering how to start a mobile bank, 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.
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 project requirements and business goals. And don’t miss out on statistics and factual data.
You can contact Gearheart.io and consult with our business analyst. How long should it take to build a 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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