In 2024, competition between digital payment platforms and traditional banks became fiercer than ever. The growing demand for convenience, efficiency, and cutting-edge technology has established online banking solutions as leaders in the ever-evolving FinTech world.

In this article, we explore the advantages of digital payment solutions over traditional banks and introduce the best online banking platforms on which you can build your own PayTech product.

What is an online banking platform?

An online banking platform is a pre-built payment software designed to provide the foundation and tools needed to develop and operate modern banking solutions, including neobanks and other financial systems. 

Online banking platforms provide a comprehensive set of features and capabilities that enable organizations to efficiently set up, manage and scale their digital banking services. In our article on a digital banking platform development you can find more details about must-have features of this platform.  Check our article on digital banking to explore its types and benefits for financial companies.

Online banks vs. traditional banks

The main difference between online banks and traditional banks lies in the way they operate and offer their services: 

• Online banks operate exclusively in the digital realm and have no physical branches. 
• Traditional banks are supported by a network of physical branches for in-person transactions and offer a wider range of services, including checking and savings accounts, loans, and investment options, etc
• The majority of consumers (61%) surveyed indicated that they are likely to switch to a digital-only bank.

The choice between the two depends on individual preferences in terms of accessibility and level of personal interaction.

The difference between online banks and traditional banks

Online banking and traditional banking services each have their own strengths and weaknesses. Online banking offers the convenience of 24/7 access, allowing customers to efficiently manage their finances from any spot with an Internet connection. Transactions are processed quickly, allowing users to easily check their account balances, transfer funds, and make electronic payments.

In contrast, traditional banks offer the advantage of handling more complicated banking transactions face-to-face with bank representatives. However, it’s important to note that traditional banks may not offer the same robust security measures as online banks.

The advantages of online banking platforms

Digital banking software offers a variety of benefits for both financial institutions and their customers. In the following section, we highlight the key benefits of the digital banking platforms for payment companies:

Accelerated development

Pre-developed online banking platforms significantly speed up the development process for payment companies. They provide a foundation of pre-built software and functionality, eliminating the need to develop complex financial systems from scratch.

Cost efficiency

Using pre-developed online banking software can result in significant cost savings. These platforms often have a set of built-in features, reducing the need for extensive custom development and the associated costs.

Shorter time-to-market

By streamlining the development process, payment service providers can bring their products and services to market much faster. This agility is critical in the competitive financial technology landscape. For example, the modular structure of online banking software facilitates quicker development cycles, enabling companies to launch new products and services faster.

Scalability

Many pre-developed banking platforms are designed to grow seamlessly as your business grows. They provide the flexibility to adapt to changing user needs and transaction volumes without requiring major overhauls. As customer expectations evolve, scalable online banking software allows financial institutions to adapt, ensuring a seamless user experience regardless of the scale of operations

Enhanced security

Reputable online banking platforms have robust security features, including encryption, compliance with industry standards, and fraud detection mechanisms that provide a safe environment for financial transactions.

Customization

While these platforms are pre-built, they are often highly customizable to meet your specific business needs, brand identity, and unique requirements. 

Read this article to explore the world of open source banking software.

Reduced setup and training requirements

By using pre-developed platforms, companies can minimize the need for extensive setup and staff training in software development, saving time and resources.

Best online banking platform providers

Let’s dive into some of the best online banking platforms available in the market and explore their unique features.

SDK.finance banking Platform

The SDK.finance banking Platform is a pre-developed FinTech solution on which banking products can be built. With a range of features and capabilities, SDK.finance provides a robust Platform that enables businesses to build, manage and scale their financial services faster without having to start from scratch.

The main features of SDK.finance banking Platform:

• Enhanced scalability 
• State-of-the-art fees and limits management
• Multicurrency system
• Visa/MasterCard issuing
• Effortless Integrations via 400+ APIs

SDK.finance’s banking Platform is a powerful solution, equipped with the tools and infrastructure necessary for organizations to create and expand online banking services effectively.

Finacle Digital Engagement Suite

Finacle Digital Engagement Suite, developed by Infosys (EdgeVerve), is a comprehensive digital banking platform that enables banks to deliver seamless customer experiences across multiple channels.

Finacle Digital Engagement Suite features include:

• Unified engagement hub
• Robust features and ecosystem
• Advanced architecture
• End-to-end transformation of digital experiences

Finacle Suite is a strategic tool for banks to adapt to changing customer needs and preferences, stay competitive and ensure customer satisfaction. With its open and flexible architecture, it helps banks not only meet but exceed customer expectations while maintaining operational efficiency.

nCino Bank Operating System

nCino Bank Operating System is a cloud-based platform designed to improve banking operations and increase efficiency. 

Key features of nCino Bank Operating System

• Improved navigation of the loan origination process
• Data presentation in a single view to streamline data entry
• Conditional rendering of fields, screens and tabs based on a financial institution’s visibility and access requirements
• Seamless integration with the Salesforce Lightning Experience

With a secure cloud-based solution, the nCino Cloud Banking Platform covers a wide range of business areas. This platform streamlines interactions between customers and employees, driving efficiency, transparency, profitability and regulatory compliance across all areas of the business.

NETinfo Digital Banking Platform

NETinfo Digital Banking Platform offers a comprehensive suite of digital banking solutions that meet the needs of both retail and corporate customers.

Key features of this platform include:

• Open platform design for effortless integration with any core banking system and third-party system
• Release of new digital services: self-service
• Analytics enable banks to identify cross-sell and up-sell opportunities
• Open banking features

NETinfo’s Digital Banking Platform provides a comprehensive suite of solutions, serving both retail and corporate banking needs, and offers a range of features that enhance efficiency, security, and revenue generation for financial institutions.

Read our comprehensive guide to P2P payment app development to explore how to create a mobile payment app that stands out.

Backbase 

Backbase is one of the most reliable online banking platform providers that enables community banks, credit unions, commercial banks and wealth management firms to deliver a fast, easy-to-use and feature-rich online banking experience across all customer touchpoints.

Key highlights of the Backbase platform include:

• Pre-built integrations
• Core agnostic
• Turn-key apps
• Microservice-based architecture
• Customization with web & mobile SDKs and 200+ APIs

Our unified platform covers a range of banking functions, from customer enrollment and service delivery to loyalty programs and lending. It is designed to be open and frictionless, with ready-to-use applications that improve every facet of the customer journey.

Check our article on how to choose a fintech development company to explore pros and cons of using a software vendor.

Temenos 

Temenos is one of the leading online banking platform provider in the world. The platform is designed to help retail, commercial and private banks manage transactions, risks, corporate loans and much more.

Key capabilities of Temenos platform include:

• Modular architecture 
• Extensive range of features and functionalities
• 24/7/365 non-stop operation
• Highly automated – straight through processing
• Controlled autonomy – choose level of independence
• Regular and simple software upgrade strategy

Temenos’ solution provides the ability to meet the diverse needs of banks in a variety of financial markets and regions.

Explore the core components of FinTech architecture, the technological trends and their future on our latest article.

Fiserv

Fiserv, Inc. is a multinational corporation with its headquarters based in Brookfield, Wisconsin. It specializes in delivering financial technology solutions to clients across diverse sectors, with a strong focus on the financial services industry. 

Established in 1976, Fiserv is known for its cost-effective organizational structure and a track record of acquiring core processing companies. Here’s an overview of what sets Fiserv apart:

• Cost-driven structure
• Integrated service solutions
• Predictive scoring models
• Self-service network

Fiserv is a trusted partner for financial institutions seeking to navigate the complexities of the modern banking landscape, enabling them to remain competitive, secure and customer-focused. Choosing from a diverse array of online banking platform providers allows financial institutions to tailor their services to the unique needs and preferences of their customers.

Future trends in online banking platforms evolution

Digital banking platforms go beyond basic banking functions to offer a range of features such as mobile banking, personalized experiences, and third-party application integration. By leveraging technology and data, digital banking platforms are changing the way we interact with financial institutions.

The future of online banking platforms will likely be shaped by several new trends and technologies. Below, we present the future trends for the digital banking software industry:

Mobile-first banking

Mobile banking apps will continue to evolve, offering a seamless and intuitive user experience, including features like mobile check deposits, voice-activated commands, and augmented reality-based banking services. 

Data as a personalization tool 

In this digital age, personalization isn’t just about basic data like the customer’s name. Rather, it’s about knowing your customers’ likes and dislikes and developing a unique package of banking products and services for each customer that meets their needs and wants.

Environmental and social responsibility

Online banks may focus on sustainability and social responsibility, offering environmentally friendly banking options and supporting ethical investing. For example, they may offer green loans or financing options that support environmentally friendly projects, such as renewable energy installations, energy-efficient home improvements, or electric vehicle purchases.

Global expansion

Online banks may expand their reach globally, offering multi-currency accounts and international banking services to cater to the needs of a more interconnected world.

Ecosystem partnerships

Collaboration with fintech companies and other businesses will lead to the creation of financial ecosystems, where customers can access a wide range of services seamlessly from within their online banking apps. 

How to speed up an online banking platform development?

Developing an online banking platform from scratch can be a challenging task requiring significant financial investment and time. 

SDK.finance Platform was created to make this journey much more efficient and cost-effective. Our pre-developed back-end solution serves as a foundation that allows you to accelerate the development process and focus on customer experience and adding new functionality. 

You can use SDK.finance`s ready-made Platform to build the payment product on your own, but if you don’t have software developers you can hire our dedicated development team. Our technical professionals have more than 10 years of experience in FinTech and can bring your payment product vision to life more efficiently and faster. 

The post Exploring the Best Online Banking Platforms in 2024 appeared first on SDK.finance - White-Label Digital Banking Software.

The Middle East (MENA) is a blossoming region in fintech, especially when it comes to banking technologies. And as far as untapped potential goes, the MENA region is perfectly poised to become the next bubbling hub of digital banking innovation.

As it stands, the fintech sector in the Middle East amassed a 30% compounded annual growth rate (CAGR) in the past year, and the predicted capital funding will reach 2 billion USD by the end of 2022.

Want to explore the current state and future prospects of digital banking in the Middle East? Continue reading to find out more about the potential of neobanks in different MENA countries. 

A deep overview of digital banking in the Middle East

The digital banking Middle East scene has lagged behind Europe and North America due to the slower adoption rate of modern banking standards. Apart from that, ideological incompatibility in terms of religion can also stifle innovation by discouraging investors from venturing into the Middle Eastern market.

However, with foreigner-friendly initiatives like financial free zones appearing in the region, fintech companies can now operate freely with international standards, fostering faster innovation.

But the situation differs in individual countries in the Middle East. So, let’s explore the digital banking scenario in specific Middle Eastern nations. We’ve narrowed down this overview to four Gulf Cooperation Council (GCC) countries.

Saudi Arabia

The first digital bank in Saudi Arabia is Saudi Telecom Bank (STC Bank) — the rebranded version of the old bank with a capital of 660 million USD. Following in STC Bank’s footsteps is real estate company Abdulrahman Saad Al Rashid & Sons (ARTAR), which earned a license to launch a digital business development bank with a 400 million USD capital fund.

According to KPMG, the fintech market in the Kingdom of Saudi Arabia grew 147% from 2018 to 2020, and is expected to grow by a further 55% before 2033, which highlights the promise of digital banking in Saudi Arabia.

Currently, the Saudi Arabian Monetary Authority (SAMA) relies on a regulatory sandbox to support fintech initiatives within the Kingdom. In line with the Saudi Vision 2030, this sandbox has since accepted over 20 fintech solutions after stringent regulatory evaluations to determine their eligibility.

Other prominent digital banks in Saudi Arabia include D360 Bank (440 million USD capital). Liv (UAE) has also extended its operations into the Kingdom of Saudi Arabia.

United Arab Emirates

The UAE has become one of the fastest-growing economic and technological hubs, owing to the National Innovation Strategy. Other initiatives like the Artificial Intelligence Strategy 2031 and Emirates Blockchain Strategy 2021 have also accelerated investments in technological advancements, especially in the banking and finance sector. 

And most importantly, the establishment of over 40 financial free zones across the seven Emirates has also encouraged innovation in digital banking in UAE. According to the provisions of these new financial zones, foreigners can own neobanks in UAE under English common law without needing the services of a Local Service Agent.

In essence, you can build and launch a new digital bank in UAE while maintaining international banking regulatory standards. The two principal regulators in the Emirates are the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM).

Zand is the first digital bank in UAE to provide retail and corporate services as part of its customer-centric remodeling. Legacy banks like Emirates NBD, Mashreq, and the Commercial Bank of Dubai have also led the way in adopting digital banking solutions. Some of the best digital banks in the UAE include Liv, NOW, Rise, and Neo.

Qatar

According to IPSOS, over 94% of bank customers in Qatar have used at least one form of digital banking channel. 

Source: IPSOS

The Qatar Central Bank (QCB) has increased investments in the financial sector in order to compete with its neighbors. And since Qatar has over 75% smartphone penetration, most banks are switching to mobile banking services to address customer needs.

Besides, Qatar Islamic Bank (QIB) recently launched a video banking service available on the QIB Mobile App, making it the first digital bank to use this feature in Qatar.

Other banks that provide mobile banking services in Qatar include: 

• Doha Bank
• Commercial Bank of Qatar (CBQ)
• Dukhan Bank
• Ahli Bank
• HSBC Qatar

Bahrain

As part of the nationwide initiative to move from its oil dependence, Bahrain has been working on the Economic Vision 2030 to focus on competitiveness and sustainability. 

In line with this vision, the Kingdom of Bahrain has launched meem, the first Shariah-compliant digital bank under the digital arm of the Gulf Internation Bank (GIB). Another noteworthy Bahrain-based digital bank is Bank ABC — a banking platform that enables customers to use multiple channels 24/7.

The National Bank of Bahrain has also launched a Digital Banking Challenge to encourage young innovators to build core banking solutions that rely on emerging tech trends. The Bahrain Fintech Bay will also participate in this program, providing mentorship and support at different stages.

Types of digital banks in the Middle East

Here are the digital bank categories you can find in Middle Eastern countries:

Challenger banks

Traditional banks create digital banking applications as subsidiaries. For instance, ila Bank is a digital mobile banking platform that belongs to Bank ABC. This challenger bank stands out for its use of Fatema — a digital assistant for improving the customer experience with the bank.

Digital-only banks

Some banks have only digital platforms without any physical locations. They offer in-app services and standard account handling operations for customers. Liv, meem, and Mashreq Bank’s Neo are some banks that provide only digital services. To find out more about digital banking read this article.

Standalone financial platforms 

Hala started as a mobile wallet for conducting digital transactions before shifting operations to POS and card services. Hala is not a full-scale digital bank yet, but the company is considering adopting a suite of banking services soon. Other platforms like Xpence provide bookkeeping, expense management, and virtual card services online. 

Read this article to get more information about digital banking.

The future of digital banking in the Middle East

Digital banking holds a lot of promise in the Middle East. According to the Milken Institute, over 465 fintech companies are currently available in the region, (as of April 2022) compared to just 30 in 2017. This rapid increase aligns with less-strict regulations and more investment in banking innovation.

Also, the speed of innovation hinges on the 70% average internet penetration rate in the Middle East region, which ranks fourth worldwide. As a result, more people are creating digital banking accounts. 

Besides, the adoption of crypto will also change the rate at which fintech companies build and implement digital wallet software and DeFi exchanges. With platforms like Moyasar and CBPay leading the way, other digital wallet platforms will surface in the MENA market over the coming years.

COVID-19 is another factor that will reshape the future of banking. For instance, the Fintech Times reports that the popularity of digital services available at the Abu Dhabi Islamic Bank (ADIB) has reached 94% since the start of the pandemic. Safe to say that this trend will continue even after the pandemic, as more people switch to contactless banking.

And most importantly, the sheer importance of becoming viable competitors on the global stage will drive GCC countries in the Middle East to invest more in fintech solutions and digital banks. 

At SDK.finance, we create white-label digital banking software for commercial use, implemented on-premise, with the source code license, letting you gain complete control over your banking product and seriously reduce costs and time-to-market.

References 

Fintech in the Middle East and Africa: Regional Review | Velmie 

Why Launch a Digital Bank in the Middle East? | Velmie 

Mobile Banking in MENA Offers Huge Growth Potential | Velmie 

The Growth of Digital Banks in the Middle East 

FinTech in the Middle East – The Rise & Prospects in Digital Banking 

Digital Banking in the Middle East and Asia – Codebase Technologies 

Middle East Banking: The Only Future Is Digital Only | Global Finance Magazine 

Digital Banking Maturity Study EMEA | Deloitte Saudi Arabia 

The slow rise of neobanking in the Middle East – Wamda

The post Digital Banking in the Middle East: Overview and Future Prospects appeared first on SDK.finance - White-Label Digital Banking Software.

Despite the increasing adoption of the branchless banking system, some customers are still reluctant to switch completely to the branchless banking model. Of course, the reason for this is not far from the benefits the branched banking industry offers. For instance, we all know how sensitive finance issues are. Most persons would prefer to hand over the maintenance of their funds to financial institutions with physical branches rather than one without identifiable branches. Over the years, this belief system has supported the growth of retail banking across different age grades.

However, the rise in digitalization and the inclination of the younger generation towards accessing convenient, fast, reliable, and over the internet banking services is a concern for most retail banks. As a result, retail banks have stepped up to offer retail financial banking services to their online customers. But then, what is retail banking, and how does it differ from digital retail banking?

Retail banking definition

When people talk about going to a bank to open an account, make a deposit, or withdraw, they refer to retail banking. It is a banking model whose operational focus is to provide monetary services necessary for the day-to-day activities of individual consumers within a geographical area. In this banking sector, the need of individual consumers supersedes the needs of corporate entities, and as such, services are tailored toward satisfying individuals in their daily activities. Their goal of helping individual customers better plan and manage their finances earned them the name- consumer banking or personal banking.

Source: Banking Hub

To provide some context to this termin, let’s check out some retail banking products and services.

• Account opening and savings
• Cash remittance
• Personal loan processing
• Safe-deposit services
• Issuance and maintenance of debit cards and credit cards
• Foreign transactions
• Processing of mortgage loans
• Certificate of deposit, etc

Retail banking vs. retail digital banking

As we have discussed earlier, retail banks are simply those banks we see around us and transact with daily. The catch with the customer banking system is this: it is a consumer-centric banking model that offers basic monetary services. Some examples of retail banks include Stand chartered bank, Citi Bank, US Bank, Bank of America, Wells Fargo, etc.

Banking retail services include account opening and checking, personal loan processing, savings, funds transfer, etc. Imagine performing all of these financial activities via branchless internet-based platforms. Now, that is what digital personal banking implies. For clarity, digital retail banking is an online version of consumer banking in that it has to do with offering financial services but with the use of digital-only tools.

Retail banking vs. commercial banking

In retail banking, the bank’s focus is to profer financial and ancillary services that are tailored towards meeting the monetary needs of their individual customers in their daily activities. On the other hand, commercial banking describes the system of banking whose services are tailored toward meeting the needs of corporate entities and governmental organizations. It is not uncommon to find most banks operating both banking industry, and that stems from the benefits these systems offer the bank. The shift towards digital channels and technology-driven solutions continues to reshape retail banking trends. 

In running a bank, both commercial and retail banking systems work hand in hand to keep the bank profitable. Let’s consider this in context, shall we? The customer banking industry helps the bank pool a good amount of liquidity from deposits made by individual consumers. At the same time, While the commercial banking system is where the funds are used in the form of loans to business entities and government organizations who in turn pay interest to the bank. 

Trends driving the retail banking industry

Retail banking trends have been rapidly evolving in recent years, driven by digital transformation and changing customer expectations. The rise of technology has revolutionized the way people interact with their banks, leading to a significant shift towards digital channels and services.

• Dependence on the Internet

According to a study, many customers, particularly slow digital adapters, were forced to switch to online during the lockdown. The way individuals shop and use internet banking has permanently changed, particularly for consumers aged 65, which is more than three times the proportion of Generation Zs. The reliance on digital touchpoints along this journey has risen quickly, prompting retail business models to rethink their offerings and conform to new customer expectations by offering their products and services via retail digital banking. 

• Rebalancing

Although most consumer banking and sales continue to take place in physical locations, the distribution of footfalls has shifted. Throughout 2022 and even 2023, online retail choices will outperform high streets, shopping centers, and city center sites. People will remain nervous about the virus, want more services from home, and online retail options offer that convenient click-to-click destination. However, as consumers expect more and more digitally-centric customer journeys that seamlessly integrate digital touchpoints inside a physical environment to increase convenience, the purpose of stores will continue to shift swiftly. As a result, rebalancing became one of the most common retail banking trends. 

• Disruption in the supply chain

The pandemic has highlighted the fragility of complex global supply chains, and we expect to see hunger issues persist throughout 2022. Rising transportation expenses, labor costs, customs, levies, a shortage of haulers, and disruption of country borders will be significant issues. Stock availability will continue to be difficult, which might exacerbate the problem for organizations like retail banks that want to expand their supply chain and reduce reliance on jostling time modules.

• Net Zero Emissions strategy

This banking industry will face more pressure to provide excellent transparency around core emissions, including ambitious and measurable targets. According to research, just around half of publicly traded UK retail banks have a net-zero emission, and of those that do, the average time to net-zero is about 22 years.

The government, consumers, investors, and even also internal financial institutions employees would put more pressure on corporations to do the right thing. Large retailers will put increasing pressure on their suppliers, to be honest about core emissions, and performance and ambition will become a much more critical aspect in retailers’ selection of suppliers.

• Protecting profitability

Before the pandemic, retail banking profitability was under severe strain, and pretax earnings for the most prominent retailers have nearly halved in the last decade, falling to 9.2% in 2012 and 5.1% in 2021. Margins have been squeezed by growing expenses, fierce competition, and a shift towards online activities. In particular, the shift towards IT banking has left many retailers with more physical outlets than they could commercially justify, which often ties them to structures that inhibit their ability to implement business models as quickly as they require.

Simultaneously, significant expenditure will be necessary to improve the efficiency of online operations. Automated dispatch systems, hiring data scientists, or introducing more complex marketing campaigns are all possibilities. This digital transformation will present new hurdles across the whole value chain, resulting in increased costs, changing the retail banking trends.

Explore our latest article on digital payments to examines common payment methods, trends and technologies.

With these retail banking trends, the industry is undergoing a transformative shift, adapting to the demands of a digital-first and customer-centric landscape.

How retail banking works and earns profit

Image source

As it is with all product and service entities, the primary driving force is to generate revenue. The same revenue logic drives the banking sector. For retail banks, revenue is generated from the charges and interest they make off the services they render to the public. For instance, when an account is opened in a retail bank, you are allowed to make a deposit. The money you deposit doesn’t lie idle in your account. Rather, it isthey are used for the operation of credit facilities. Other bank users borrow from these funds, and the bank generates revenue in the form of interest on borrowed funds.

Also, services of retail banking institutions generate revenue from the discrepancies in interest rates. For instance, a retail bank promises you an interest that ranges from 4%-5% if you leave your money untouched for a while. But the bank will issue you a loan to get a house or a car at a rate ranging from 10% to 15%. Making consumer loans is a crucial strategy through which retail banks generate revenue.

In addition, retail banks charge a small service fee for some ancillary services. A few examples are monthly, credit card, and overdraft costs. These are the strategies retail banks employ to stay profitable.

Note: the profit generation strategies also apply to retail digital banking.

Kinds of retail banking

There are two major categories of the banking institutions, and they include:

1. Mass retail banking: Here, the focus of the bank is to provide essential monetary services to a large number of people. The aim of this kind of bank is to generate a large pool of clients who, through their deposits, ensure constant funds are available for the bank to carry out their businesses. It is subdivided into the following:

• Community banks: This kind of bank provides essential monetary services to low-average income earners within a defined community.
• Postal saving system: This type of banking retail system serves individual consumers who do not have access to a proper bank, a safe and secured avenue to deposit their money.

2. Class retail banking: It provides monetary services to a very limited but unique segment of clients. Clients in this segment are defined by the wealthy they command, and they are usually the elites in the society who perform businesses that are heavily beneficial to the bank. The most popular in this category are Julius Baer, ​​Goldman Sachs, BNP Paribas, Citigroup, JPMorgan Chase, and Credit Suisse.

To get more information about digital banking, read this article.

Advantages of retail banking

If you are looking at the personal banking system from the resource and asset perspective, the benefits of retail finance to the bank and the economy are indisputable. Let’s look at a few of these advantages.

Brand building

This banking system serves many people who prefer running transactions with a branch financial institutions. Of course, bringing in large individual consumers ensures there is enough liquidity to provide loans for other consumer clients. But on the flip side, it is building awareness for the bank. The more people walk into the bank to transact, the higher the chances of retaining a mental picture of the bank, which is good for brand creation.

Constant liquidity with non-negotiable interest

Retail client deposits are stable and create core deposits. Such deposits come with non-negotiable interest. Hence, there is less room for extra interest negotiating. Since they serve many people, they also have access to large funds.

Improve client relationship

Consumer banking has a better client management score and that in turn helps in building a dedicated and loyal client base

Increased diversification

With personal banking in place, banks can now look into more side businesses like pension schemes, mortgage processing, mutual funds, etc. Through increasing output, retail banks contribute to the country’s economic progress and rebirth.

Consumer banking provides quick and easy soft loans to consumer clients, thus improving the standard of living of low and average-income earners.

Disadvantages of retail banking

Increased rate of long-term loans becoming non-performing assets. There is a high chance of consumers defaulting on long-term loans in retail banks, which could become non-performing long if not properly supervised.

Retail banks incur heavy expenses on human resources to keep tabs on many disbursed loans.

The future of retail banking

With the closure of many bank branches, particularly in the United States, the retail banking industry has undergone significant changes in recent years. Although it is impossible to pinpoint the exact cause of these closures, given the current state of internet consumer banking, there is no doubt that online and mobile banking is playing a role in all of these difficulties. Experts believe these retail banking trends will continue in the personal banking segment, as it had done for the past 25 to 30 years when the government deregulated banks. It should, however, be noted that not all retail banks are closing branches; some are forming credit unions.

Digital banking platform vendor 

The adoption of digitalization has given birth to many modern banking models that offer branchless banking services. These banks employ improved fintech solutions to offer people fast, secured, and seamless basic banking services. Since branchless banking is getting more and more popular, and the demand for digital banks is growing, building new digital banks is easier if you’re using a ready solution like that of SDK.finance digital retail banking platform.

With the SDK.finance white-label banking platform, a new banking product can be launched a few times faster compared to building it from scratch. Basing your neobank on the reliable transactional core build by an expert team with 15+ years banking and payment software development, you will be able to focus on attracting the huge customer base and improve the service for customers.

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The prospect of starting an online bank from the ground up is scary because we always imagine how much it will cost to get every small facet in the right place. 

But when working with digital banks, you don’t need to worry about building offices and vaults. All you need is a valid license, top-notch funding, proper planning, and timely execution to build a bank that customers will want to use. 

In this article, we’ll go through a step-by-step breakdown of how to build a digital bank.

A quick overview of digital banking

According to research by Insider Intelligence, 18% of the US population (48 million people) will start banking exclusively with digital banks by 2024. Data from Research and Markets shows that the global neo-banking CAGR will increase by 45% in 2025.

Source: Research and Markets

In the global neobanking market, enterprise applications account for over 52% of the global revenue, which is about 47.4 billion USD. This signifies a lot of promise for digital banking.

As the trend continues to sway towards contactless banking, fintech companies will rely more on personalization, data analysis, and deep learning to improve their services and remain competitive. Some banks will have to deliver the banking experience as an ecosystem of value-laden products and digital banking services.

Also, banks will collect biometric data from their consumers to provide more secure services. These technologies could replace SIM cards, token drives, and pin codes.

What you should know when starting a digital bank

Banking is a tightly regulated sector that maintains a high bar of entry for prospective entrepreneurs. Before you create a digital bank, you need to understand how the industry works and the key considerations to bear in mind. 

Funding

You need money to start a digital retail bank — a lot of money. And this is the first barrier to entry for anybody venturing into banking services. 

Before you kickstart your project, ensure to secure a reliable source of funding. Regulators will have to evaluate your capital potential before granting you a license to build a digital bank.

Common sources of funding for digital banks include angel investors, venture capital, borrowed funds, deposits, and shareholders’ money.

Customers 

Once you’ve sorted the funding, you still need to figure out the prospective customers for your neobank. Conduct extensive research to determine the user demographics from which you can predict the customer’s journey with your potential product and digital banking services.

Internal administration

Dedicate enough time to define roles within the team. Start with administrative tasks and work your way down to risk management. Address the following questions: 

• Who must I have on the team? 
• How many managers do I need?
• Who will become part of the board?
• Who will handle all risks and conflicts?

Answering these questions will help you establish a clear-cut hierarchy within your organization.

Technology stack

You’ll need to factor in technology considerations for online banking in the early stages. Before finalizing your development ideas and assembling a team, confirm that your company has the required technology stack to build a secure digital banking platform. 

Don’t forget to determine if your team understands compliance regulations within the banking sector. If not, consider outsourcing the development process to certified digital banking platform providers.

Read this article to explore how tech stack affects the cost of banking app development.

Essential features

Since your online banking will not have any physical branches, you must build features to replicate the feeling of a “traditional” bank online. Some key components of a standard digital bank in 2022 include:

• Personal finance manager
• Mobile banking
• Digital wallet
• Automated payments
• Discounts and loyalty programs
• Alerts and push notifications
• Automated savings.

Watch the SDK.finance Platform’s demo video to explore the system functionality and simplify transaction management via one powerful Platform:

You can take advantage of digital banking technology to add more features to your mobile banking platform or pay attention to the features of popular neobanks like Revolut.

Monetization

Regardless of the purpose of creating the core banking system, you owe your investors and board members a duty to make returns on their investment. 

That said, you must figure out ways to generate income from the core banking systems. The following monetization models can work for your digital banking platform:

1. Premium membership with advanced features like travel insurance, better saving rates, and VIP treatment.
2. Interest on every transaction and loan payment.
3. Commissions on every transaction, which is the primary source of income for most neobanks. 

Note: Some young banks use the zero-commission play to attract users, but this strategy is not sustainable in the long run.

How to start an online bank?

When you build an online bank, you need to follow a systematic approach to ensure it meets all industry requirements. 

Follow these steps to learn how to start an online bank:

Identify the target audience

Before you start a digital bank, conduct in-depth market research to find out who will use the bank. 

• Is the target demo young people or senior citizens?
• Should the bank’s core operations focus on loans and credit?

Understanding the digital banking platform’s potential users will help you develop user personas from which developers and designers can build a market-relevant product. 

Also, you must understand that only 25% of the global population (1.9 billion people) uses any form of digital banking. Since many people still distrust branchless banks, you can only convince them to use your platform by creating awareness and showing transparency.

Apply for licensing

Sometimes, owners prefer to obtain the license for their product before they start building it, but this process is never straightforward. 

Here are three license categories for digital banks:

• Full banking licenses for general digital banking activities.
• International banking licenses, which allow only offshore banking operations.
• Non-banking financial institution (NBFI) licenses for companies that provide financial services but without the same regulatory scrutiny as full-scale banks.
• Acting under the licenses from existing traditional banks. As banks are well-regulated, any  entity (a digital bank, in this case) that they partner with falls under their purview. 

Some regulatory bodies can only license your product if you have a working prototype or proof a business model, while others just give you a license before you start creating anything. To avoid any issues, work with an expert consultant in the banking technology sector for guidance.

US agencies involved in the licensing and monitoring process for digital banks include the Federal Reserve Board of Governors and the Federal Deposit Insurance Corporation (FDIC).

Build a digital bank on top of SDK.finance solution

Developing digital banking software from scratch can be a challenging task, as it can take 1-2 years and significant financial resources. You are also responsible for server infrastructure and security measures, and need to find an experienced development team capable of handling a complex fintech project.

The SDK.finance payment platform serves as a powerful foundation for building a digital bank, e-wallet or payment acceptance product. It is a stable and reliable engine for your banking services that can be easily extended via integrations with virtually no limitations. With our pre-developed fintech system, you can launch your payment product and increase your revenue by offering digital banking services faster.

Set up the infrastructure and services

To establish a foundation for your digital bank, it’s important to configure the environments, including development, pre-production, and production, in a way that promotes smooth and efficient development. Additionally, you’ll need to set up services that can assist with deployment, monitoring, and maintenance tasks. This step will ensure that your platform is well-prepared to operate effectively.

Set up production environments 

The infrastructure of SDK.finance comprises three servers: a developers instance, which is used for software development and testing; a production instance, which is responsible for live operation with real end-users and transactions; and a pre-production or Sandbox instance, which has the same specifications as the production server and is utilized for debugging third-party component integrations.

Requirements of the instance for production and test environments:

CPU – 1

RAM – 2 GB

SSD – 40 GB

OS: Ubuntu 20.04 LTS

Software: NGINX 1.14.0

System configuration

Optimizing the performance and security of a digital bank platform requires undertaking several essential tasks, such as establishing roles, configuring commissions, creating wallets and currencies, setting up contracts, determining exchange rates, and granting permissions. Properly executing these tasks can ensure the smooth and efficient functioning of the digital banks systems.

To begin setting up the SDK.finance payment software, you need to authenticate as an administrator via the API. After successful authentication, the API will provide a token along with other user parameters in the response. This token is crucial for accessing other APIs, and you can choose to save additional parameters if needed.

System management

System management enables you to establish specific standards and regulations for user behavior and determine the primary services and functions accessible to customers, including individuals and merchants.

There are the various use cases within the system management:

Contracts management comprises the creation of custom contracts, the inclusion of commission regulations, editing of system settings, and enabling provider commissions for digital banks.

Payment gateway management involves configuring exchange rates and managing currency.

Reports and analytics provide an opportunity to generate transaction-based reports that can be downloaded for further analysis.

Check out our knowledge base to find more information about system management. 

User management

User management consists of 4 main stages: user profile management, user registration and revision and KYC management.

User profile management includes registration, either by email or phone number, and the option to deactivate a profile. The administrator can also update profile and business information and manage security settings within the core banking systems.

KYC management enables basic compliance processes, such as document uploads, document and user verification, and requesting user actions to complete the compliance procedure.

Watch SDK.finance Platform’s demo video to explore how to manage your users, ensure KYC compliance, and prevent fraud with the robust system back office:

For more advanced KYC and AML functionality, we suggest integrating with specialised third-party providers.

Explore our knowledge base to get more details about this step in the digital banking platform development process.

Payments and transactions

This step includes funds transfer, bill payment, recurring payments setting up, currency exchange, invoicing, and merchant payment services.

Bill payments

The system provides the possibility for users to make payments for utility bills, mobile top-ups, and other services with their digital bank account.

These functionality can be used through the integration with any relevant payment provider. 

Using SDK APIs, accounting can be decoupled by customers’ virtual accounts.To allow certain payments the operation should be added to the contract.

Recurring payments 

Recurring in-system payments can be implemented utilizing the subscriptions features for banking software.

Subscriptions enable individuals or businesses to make regular payments for a service or product. SDK.finance provides pre-implemented functionality to cover the subscriptions flow, which has different settings, such as the payment period, number of payments, and subscription end date for digital banks.

Subscriptions can have various statuses:

• active
• stopped
• processed
• canceled

The expiration type of a subscription determines how it will end, either by a certain date, a certain number of payments, or with no limitations on its duration.

Read our knowledge base to find out more about payments and transactions. 

Invoicing

Payment systems built on top of SDK.finance allow users to create, send, and manage invoices electronically, making the process more streamlined and efficient.

Merchants can effortlessly create and monitor invoices, streamline payment reminders, and handle customer payments. This simplifies financial operations, minimizes errors and administrative tasks, and enhances customer contentment by offering a smooth and seamless payment process for a digital banking platform.

Our current set of use cases for banking software related to invoicing includes:

• issue of invoice
• view/search and filter the list of issued invoices
• invoice templates 
• payment of invoices

Check out our knowledge base to  dive into invoice issuing flow. 

Third-party integrations

The integration type required is dependent upon the specific operational needs of the digital bank and the payment business model.

Various categories of third-party service providers exist, including:

You can also customize charges and restrictions for each provider and authorize or forbid specific functions for a particular user group. For additional details regarding third-party integrations, read our knowledge base.

How much does it cost to start a digital bank?

The cost of building an online banking system varies according to your chosen route. If you want to buy a ready-made solution for a vendor, you will not pay as much as someone building the entire architecture from scratch.

If you have a large team of experts available to you, then you can build your core banking solution from scratch. In this case, you’ll have to spend around 500 000 USD to 1 million USD to buy APIs, pay your staff, apply for licenses, and pay server fees.

But if you buy an off-the-shelf banking solution, you won’t have to pay all these administrative wages and service fees. Instead, you can ask for custom adjustments to get a bespoke solution that meets your initial requirements. Read this article to get more information about white-label digital bank solutions.

This ready-made solution will cost you around 250 000 USD to 500 000 USD to purchase and integrate into your banking ecosystem.

With SDK.finance white label digital banking software  you can save time and money, without starting from scratch. Our system is available both as a cloud-hosted version and an on-premise one. You can start with affordable cloud-based software by subscription or get a full control, using a source code license

We believe that this is an ultimate approach to save quite a load of time and resources for software development. You get a fully functional piece of core bank software that can be extended and customized according to your business requirements by your own in-house team. Being built by our team of seasoned experts in fintech software development with 15+ years of experience (and quite a lot of mistakes along the way that we learned from), the resulting product is reliable, secure and future-proof (and continuously improved). 

Conclusion

Building a digital bank requires proper planning, execution, and attention to the minutest details. But first, you need to develop a concept, find the right audience, obtain the required licences, and get funding. You also need to choose the technology stack and monetization models to make the app profitable. And above all, you need to create a product development plan for your internal or external team of developers. 

Now that you know what it will cost to build a digital bank, start working on a budget and funding source right away.

References

• How to Start a Neobank [Detailed Estimate] | Code&Care 
• Digital Banking in the Middle East and Asia – Codebase Technologies 
• 3 Steps to Start a Neobank
• How to build a digital bank 
• https://skaleet.com/en/blog/9-steps-to-creating-a-digital-bank-from-scratch/ 
• How To Build A Digital bank | The Startup 
• Starting a Digital Bank – What Does it Take? 
• How to build a digital bank 

The post How to Start an Online Bank from Scratch? appeared first on SDK.finance - White-Label Digital Banking Software.

The rapid development of the IT sector has led to positive changes in modern technologies in all areas of business, especially financial services and online banking. One notable transformation has been the emergence of neobanks, which operate exclusively on the Internet without physical branches.

In this article, we will explore the concept of neobanks and delve into the benefits of online banking source code. By understanding its structure, advantages, and practical applications, you’ll gain valuable insights into how this innovative solution can propel your business forward.

What is an online banking source code?

Just to be on the same page, let’s look into what banking software is for the fintech niche. The banking source code is the core of the system from which you can create any online banking products, such as neobank, e-wallet, digital retail bank, and currency exchange. These systems help to avoid paperwork and get huge customer coverage in more than one country without opening physical bank branches.

It gives you the ability to avoid problems related to cash money such as change money, encashment, and counterfeiting. Most companies provide a product on a subscription basis, which limits your growth opportunities. The most suitable option would be a one-time purchase of the banking software code since when you purchase the entire product, you get full control over the product and can change the functionality and expand your capabilities as you need.

But when the base source code is provided to you, your programmers or our specialists can enter the software to reprogram it by changing, adding, or removing any function, and then you compile and use the version you need.

When is it worth buying online banking source code?

After we figured out what online banking core code is, we should find the most opportune moment to buy software source code. As a rule, the most suitable option for purchase is if you have a new developing company with a relevant stack that plans to have the time-to-market step as efficiently as possible.

Online banking system source code software will also be useful for those companies that want to completely change their system, but do not want to spend money on retraining their coders and want to get a system without a lot of errors. Even if a system without this source code used to be ideal for your requirements, we are sure that your needs will change sooner or later, and with the source code, you can respond as quickly as you need.

For a better understanding, it is worth noting that fintech source code is suitable for medium-sized companies with established IT staff who want to save their own time to accelerate development in this area.

How does online banking source code work?

When you understand what are the right moments to buy and whether your company fits the requirements it’s worth talking about how it works. Banking core software works as a multicomponent system consisting of:

• Core banking (conducts transactions and operations);
• Open API (automates business processes, controls the status of accounts, documents, client management system, contains information on clients);
• Reporting engine DWH (responsible for the safety of the necessary data and provides faster access to data);
• 3rd party providers (give the ability to add additional modules and functions);
• Transaction Viewer Database (protects all transaction information from third-party access);
• Operational Database (completely protects all information about clients);
• LoadBalancer (connected to stabilize the system load).

Business advantages of open-source banking software

To understand why an online banking system source code is needed at all, it is necessary to consider the benefits for business. The most important advantage is that you have more efficient time to market. You don’t waste time developing banking core software, you save money on development, so you can use this time and money to get to the market faster.

While your competitors are developing online banking system source code software, you are already making a profit and attracting more clients. It takes a huge amount of time and money to develop banking source code. So, ready-to-go on-premise software may be a solid solution that solves all the issues for your growing business:

Accelerated time-to-market

By utilizing ready-made software solutions with source code, businesses can significantly reduce development time and costs. Ready-to-use solutions allow for faster market entry, ensuring a competitive edge and accelerated profitability.

Check this article to xplore how do neobanks make money.

Enhanced customization

Banking software source code offers businesses the freedom to modify and expand functionalities according to their specific needs. This customization allows for seamless integration with third-party solutions, enabling businesses to offer a wide range of services and tailor their platforms to meet customer demands. Additionally, customization facilitates streamlining of Know Your Customer (KYC) processes, ensuring compliance and a smooth onboarding experience.

Cost efficiency

Purchasing online banking source code eliminates the need for extensive in-house development teams and minimizes expenses associated with bug fixing and maintenance. Businesses can save on resources while still leveraging robust and reliable software solutions.

Stability and security

Professional programmers ensure the stability and security of online banking source code. With robust transaction and operational databases, sensitive customer information remains protected, and operations run smoothly without interruptions or security breaches.

More features

The ability to create user groups and give them the rights of administrators, and editors of certain sections, set limits on the withdrawal of currencies, and change the commission percentage. Simple and understandable graphs with real-time analytics, and receiving commissions dashboard. Convenient CRM system for faster KYC.

Global expansion opportunities

Online banking source code empowers businesses to expand their reach globally. By transcending geographical limitations, companies can cater to a broader clientele, tapping into new markets and seizing international growth opportunities.

High-performance transaction core. Banking software source code offers you a durable mechanism without any failures, able to conduct an increasing volume of transactions and various operations without any failures.

Read this article to get information about top neobanks.

The source code of the online banking system allows you to save not only time but also money

Summing up, we can say that buying an online banking source code is right for you if you want to save money and time, if you want to get an easier start to your project, if you want to completely change your banking system and not start all over again. We try to make your work easier and are set up only for long-term cooperation. Therefore, we try to reduce your programming costs as efficiently as possible and simplify your work with the source code in order to obtain a quality product in the final result.

Why choose SDK.finance online banking source code solution?

SDK.finance stands out as a trusted provider, offering dedicated consultants ready to provide assistance at all times. With their expertise and commitment to customer satisfaction, businesses can rely on SDK.finance for ongoing support and guidance. Our payment software source code makes it easier to open your own neobank or another banking system. To understand why you should choose our product, we will provide you with a list of the main features that make us the best in this field:

SDK.finance offers comprehensive training options to ensure a smooth integration of their banking software source code solution. Through documentation, live online sessions, webinars, and videos, businesses can acquire the necessary knowledge and skills to maximize the benefits of the solution.

With over 15 years of experience in the FinTech industry, SDK.finance has a proven track record of delivering reliable and tailored solutions. Their expertise enables businesses to leverage a robust banking software source code solution that meets their unique requirements and positions them for success in the ever-evolving financial landscape.

Conclusion

By leveraging the benefits of online banking source code, businesses can revolutionize their operations, expedite time-to-market, and expand their reach in the competitive financial landscape. The ability to customize, enhance security, and save costs positions banking software source code as an indispensable solution for neobanks and other digital banking ventures. Take the leap forward with SDK.finance and embark on a journey of innovation and success in the dynamic world of digital finance.

The post The Advantages of Online Banking Source Code: A Comprehensive Guide appeared first on SDK.finance - White-Label Digital Banking Software.

With AI, machine learning, and big data initiatives driving change, financial institutions look to these technologies to optimize processes and improve customer experience. 

But what are the technologies used in banking today? And which ones should financial institutions prioritize moving forward?

In this article, we explore key retail banking trends that every financial expert should know to future-proof their business operations.

Data-driven decision making

Data has always been the major driving force in the decision-making processes, especially within the financial sector. But as the quality and amount of data available continue to increase, banks will start using advanced, topical analytics to make more accurate decisions.

Financial institutions will be able to use data for the following:

1. Risk modeling — banks will be able to diagnose and predict potential risks earlier. As a result, financial experts can suggest solutions and workarounds to avoid these pitfalls.
2. Fraud prevention — large swathes of data will help internal regulators at financial institutions monitor transactions to detect fraudulent activities.
3. Customer satisfaction — personalized customer data will help banks improve the overall user experience across all platforms.

With new data management and analytics tools, financial institutions will be able to extend their data fabric as wide as possible to get the most accurate insights.

Process automation

As digital retail banking becomes the new norm, companies will find it easier to implement automation in their ecosystems. Robotic process automation (RPA) and digital process automation (DPA) will continue to grow as banks look for ways to eliminate redundancies and increase workflow efficiency.

Data from McKinsey also shows that IoT devices will surpass 50 million by 2025. Also, advancements in artificial intelligence and machine learning mean that over 50% of all internal banking processes can be automated. 

Corporations like Capital One, Citi, and HSBC already use AI applications to run their digital retail banking operations. These financial giants also rely on AI-powered algorithms to authenticate customers’ identities.

Besides, deep learning and natural language processing algorithms can also help banks boost efficiency by automating repetitive, human-reliant tasks. The customer service sector in banking will use these technologies to assist customers in real-time and close cases faster.

Blending AI with RPA for better performance. Source: EPSoft

Better customer experience

Modern consumers crave personalized interactions with financial institutions when making payments, searching for information, or applying for loans. Regardless of the operation, users want to feel a special connection and enjoy a smooth user experience.

As competition for dominance continues to increase in the banking sector, companies like JP Morgan are paying more attention to features that make banking more convenient for customers. Whether it is contactless payments or investment solutions, financial organizations will always put customers first.

Customer support is another core aspect of the user experience in the banking sector. With 79% of Gen Z and Millenials looking to work only with financial institutions that cater to their personal needs, more banks will apply data science and AI to optimize the customer experience.

Increased focus on saving

The shock of the pandemic forced younger people to focus more on saving and investing. According to a Chase study, 40% of consumers are willing to explore more saving options to protect their money from unforeseen circumstances.

Besides, 91% of respondents to the Chase study admitted that autosaving technologies helped them cut down on their expenses and monitor their savings better.

To this effect, banks and financial houses are implementing AI-powered technologies to help customers automate their savings. A great implementation of this retail banking technology is the Chase Autosave feature, which allows users to do the following:

• Make daily savings manually.
• Save a specified percentage of every deposit.
• Choose an amount to save over a specific period.

Since most consumers rely on mobile banking services, companies will have to integrate autosaving features into future apps.

Open banking expansion

Open banking allows third parties to use another bank’s APIs. Instead of monopolizing these APIs without sharing them with other financial entities, banks can deliver them as services — banking as a service (BaaS).

With regulations like the Revised Payment Services Directive (PSD2), banks can explore BaaS models to monetize their tech innovations. These regulations ensure that the third parties using your bank’s API fall under these two categories:

• Account Information Service Provider (AISP) — analyzes customer account activity.
• Payment Initiation Service Providers (PISP) — make payments for the customer.

This open banking philosophy will continue to improve the quality of services that customers receive. Fintech and Insurtech companies can now take advantage of open APIs to help customers conduct transactions, buy medical and home insurance, and manage their finances.

Embedded financial services

Embedded financial services is a technology in retail banking that has now become part of everyday life. According to Accenture, embedded finance will reach a 230 billion USD valuation by 2025.

How can banks and credit unions benefit from embedded financial services?

For starters, banks can use integrated services to keep consumers on their platforms. A Plaid survey shows that 76% of consumers will only increase their engagement with a digital banking service if it addresses their core problems.

Apart from that, non-financial companies like Amazon can also rely on embedded finance to offer loans to sellers based on predefined parameters. On average, such companies have increased engagement by 87.5% over the past five years.

Moving forward, this innovation will help small businesses process payments and loans faster. Financial institutions will also use embedded financial services to boost customer satisfaction, trust, and loyalty.

Decentralized finance

Decentralized finance is a relatively new retail banking technology, which explains why financial institutions are still reluctant to adopt this system. But with government regulators working on rules to guide transactions within this new framework, financial giants are already building early concepts for decentralized infrastructures.

JP Morgan’s Digital Investment Banking experts are currently developing a platform that implements blockchain and distributed ledger technologies. Over the coming years, more financial institutions will follow this model to decentralize their operations and adapt to evolving markets.

If DeFi becomes the new norm, banks will be able tolend money to customers without worrying about credit risks. Also, the transparency that DeFi platforms provide will decrease financial crimes such as fraud and theft.

Cloud integration

Around 90% of financial institutions use cloud services for some of their internal business processes. Most neobanks use a hybrid multicloud environment to secure company data on the cloud.

With the help of AI, data fabrics, BaaS, and BaaP (Banking as a Platform), banks can secure their workloads with more robust data protection infrastructures. Besides, cloud computing makes the banking infrastructure scalable, which allows institutions to adapt to market changes faster.

According to IBM, migrating a bank’s infrastructure to the cloud can only be successful depending on digital maturity, provider capability, and business case. Deloitte experts also predict that cloud banking will help synchronize collaborations within financial organizations by providing access to shared datasets. Read this article to get more information about hybrid cloud solutions.

Banking for sustainability

Climate change is a hot-button topic in every industry, and banking is not exempt. Nowadays, consumers expect banks to follow sustainable practices that mitigate the impacts of climate change. 

In fact, 64% of young professionals say they won’t work for banks that don’t care about the environment. Owing to the potential financial costs of losing customers and employees to competitors, financial institutions are now embracing Green IT (Green Banking). 

By moving their applications to the cloud, banks and financial organizations can reduce carbon emissions by 5.9%—which is around 6 million tonnes of CO2 every year.

Mergers with tech companies

The era of banks focusing solely on financial services is slowly fading into obscurity. As new technologies become available, banks and financial organizations will need to reinvent the existing models to provide better services to customers.

This reimagined digital ecosystem will unite corporations with non-banks to harness their combined access to resources and consumers. 

For instance, Walmart is partnering with Ribbit Capital to “deliver tech-driven financial experiences tailored to Walmart’s customers and associates.” Going forward, such unions will become commonplace in the banking and consumer-goods retail sectors.

In addition, banks will have to function as full-scale tech (and Fintech) companies in order to stay competitive with juggernauts like Apple and Google. If more tech companies continue venturing into finance, traditional banks will need to merge or expand their scope of services to stay competitive.

Increased focus on security

According to CompTIA, financial institutions are most susceptible to cyberattacks, accounting for 23% of all cyberattacks over the last 18 months — an all-time high. Consequently, banks are doubling down on regulations and security protocols to protect personal and financial data from cyberattacks. 

The cost of cybercrime in 2021

In the coming years, more banks will have to adopt AI tools to detect these attacks before they occur. Also, adopting robust cloud solutions from trusted providers will help branchless banks automate data security and enforce KYC and AML regulations.

Financial houses might also need to replace passwords with other convenient authentication protocols to boost security. Microsoft and Google have already set the standard with their stand-alone Authenticator apps, and other companies and financial institutions will follow in due time.

Conclusion

The future of retail banking technology will focus a lot on improving customer experience in contactless payments, data security, and retail services. In the coming months, banks will focus more on open banking solutions to provide better customer service, make data-driven decisions, and improve their workflow efficiency.

To get your finance business ready for future innovations and technological trends, SDK.finance offers white-label software to help you build a robust, scalable, future-proof, and user-friendly digital retail bank. 

The post Retail Banking Technology Trends appeared first on SDK.finance - White-Label Digital Banking Software.

The evolution of digital fintech has left in its wake a great challenge for the traditional financial service institutions – step up or get thrown out of business. Neobanks happen to be at the center of this rally for a high-end, digitally inclined banking experience. 

While some traditional financial institutions implement digital finance services systems, neobanks are growing exponentially and penetrating new markets in other regions. In just three years, the global customer base of neobanks has grown from 2 million to 15 million, and the number of neobanks has increased from around 70 to over 250. 

According to stats, the global neobank market is growing at a CAGR rate of over 47% and is expected to hit $722,60 billion by 2028.

Source: Statista

This growth results from the neobanks enticing business model’s massive acceptance from millennials, generation Z, Startups, and MSMEs. And that is not all.

The massive patronage from the mid-eastern financial service space is adding more momentum to the growth of neobanks. While regulatory policies in other world regions have restricted neobanks to just basic financial services, policies in the Mideast allow neobanks to offer more robust financial services like traditional banks.

In this article, we explore the following: the meaning of neobank, features, and the future of neobanks. Particular emphasis will be on the white label neobank and the factors that contribute to its appeal. Additionally, a list of the best neobank solutions providers is included to assist you in launching your own product.

Neobank industry growth: how far we’ve come

Neobanks and challenger banks operate entirely online and do not require physical banking halls. From the comfort of your own home, you can make payments, transfers, and other transactions using the services provided by these banks.

Users can access neobanks online via mobile applications and web platforms. Increased internet connectivity and the emergence of a tech-savvy young population have fueled the growth of this alternative banking model. For example, in the United States, it was estimated that holders of neobank accounts increased to approximately 20.2 million between 2020 and 2021.

Source: Statista

Due to a variety of factors, customers throughout the world have begun to embrace neobanking in order to operate various business models. The ease of conducting business, lower transaction fees, the elimination of the need to visit a bank, and the 24-hour banking system are just a few of the key factors.

Neobanks, as they are entirely online, also provide seamless loans to customers with no paperwork. Among the principal services provided by neobanks are the following:

• Account management
• Processing of payments
• Cash transfers
• Online credit cards
• Micro-investment
• Wealth management
• Peer-to-peer transfers
• Insurance
• E-wallet services

While neobanks have grown exponentially in the United States, Europe, and the Middle East, the industry is largely untapped in certain parts of the world, including Asia and Sub-Saharan Africa.

Let’s look at these markets to see how they have developed thus far.

Neobanks in the Middle East

Source: Gomedici.com

The Middle East’s demand for neobanking services has skyrocketed. The proliferation of fintech startups evidences this in recent years. According to a report, as of 2020, the Middle East had over 20 neobanks serving nearly 15 million customers.

The widespread availability of internet access, combined with the emergence of Covid-19, has increased the need for neobank platforms. As such, residents of the Middle East are well aware of the benefits of doing business with fintech.

Even established financial institutions have diversified into the fintech space. For example, Bahrain’s ABC Bank, Israel’s Leumi Bank, and Dubai’s National Bank have launched unique digital banks.

Neobanking industry in Asia

Source: Fintechnews.sg

Like the rest of the world, Asia sees an increase in demand for digital-only banks. Online banking has grown in popularity in this region due to lockdown restrictions and remote work. According to a 2019 report by KPMG, roughly 73% of Southeast Asians are unbanked. At the time, only 5% of Cambodia’s population had a bank account. Due to the lengthy process of obtaining credit from traditional banks, Southeast Asia has found neobanks a viable alternative. 

In the Philippines, approximately 46% of the population don’t have access to banking services. However, with more people owning mobile devices, the market for online banks is ripe. According to Statista, the Philippines will have approximately 77 percent internet penetration by 2025. This will accelerate the growth of neobanks in the country.

Source: Statista

Similarly, we are seeing some neobank industry growth in Malaysia and Indonesia. By 2025, Indonesia is expected to have approximately 9 million users of neobanks, while transaction value will reach approximately $16.5 million in 2022, representing a 57.8 percent increase. 

Malaysian online bank customers are expected to reach 2.35 million by 2025, with user penetration increasing to 6.8%.

In India, the state of neobanking is reflected in the country’s largely untapped e-commerce market. Online-only banks are not permitted to obtain a bank license. To provide licensed services, they must form partnerships with traditional banks. The Reserve Bank of India (RBI) does not allow banks to be completely digital; it requires physical branches. 

This regulation has constrained fintechs in India to provide white-label services while relying on large banks. Fintechs have become distribution channels for traditional banks due to this synergy. Most physical banks are now establishing digital subsidiaries to compete with foreign virtual banks. 

Despite this setback, the innovation introduced by challenger banks is driving change in India, and the demand is growing. This is demonstrated by over $230 million raised by India’s neobank startups in 2020. By 2040, India’s smartphone penetration rate will reach 96%. Increased penetration is expected to accelerate the growth of India’s neobank industry. 

While 80 percent of Indians have bank accounts, virtual banks offer a path to greater financial inclusion for the country’s nearly 2 billion people.

Neobanks in Sub-Saharan Africa

Source: Whitesight.net

Economic disparity, illiteracy, and a lack of infrastructure in Africa have resulted in a large proportion of the population being unable to access banking services. According to the World Bank, about 95 million people in Sub-Saharan Africa are unbanked. 

Increased internet access and the availability of more affordable smartphones have contributed to the growth of digital banking. According to FDI Intelligence, Sub-Saharan Africa has 456 million unique smartphone users. According to the same report, by 2025, an additional 167 million users will be added.

Owners of small and medium-sized businesses benefit from the neobanks’ ease of processing and receiving payments from customers. It has helped them expand their businesses online and reach out to remote customers. The challenger banks’ digital lending service has also aided their expansion in Africa. 

Unlike the process with the traditional banks, individuals can easily borrow money without providing collateral to secure the loans which require property documentation to grant loans. 

Unsurprisingly, app-based banks have also grown in popularity in Africa. Fintechs appear to be sprouting up daily in Africa’s major tech hubs – Lagos, Nairobi, Cape Town, and Johannesburg. 

That said, Africa still has a sizable untapped market. Countries with a high population density, such as the Democratic Republic of Congo, Nigeria, Ethiopia, Tanzania, and Kenya, are expected to account for more than half of Africa’s smartphone subscribers by 2025 – thus making an audience for the neobank services.

What’s the future of neobanks?

The debate over whether branch banking or its branchless counterpart will thrive in the future continues. Both models have advantages and disadvantages, and they will play a significant role in determining which one will win the race. 

Neobanks outperform traditional banks by providing users with unprecedented convenience and features. The ability to perform payments anytime, from any location, and in various currencies is a compelling reason to embrace mobile banking. 

Traditional banking is the preferred option for the older generation because of its security. Remote authentication methods, such as two-factor authentication (2FA), biometrics, and digital fingerprints, which are security features of digital banks, have been hacked and penetrated by fraudsters. Customers are concerned about the security of their funds due to this chink in the armor of the neobanks.

It can be expected that the conventional banks will become more active players in the Fintech space soon. Their involvement will be facilitated by the lower operating costs and the ability to reach remote populations. Already, white labeling has gained popularity as it enables offline banks to expand their operations through the platform.

The neobank market was valued at USD 47. 39 billion in 2021. Between 2022 and 2030, the global neobank industry is forecast to expand at a Compound Annual Growth Rate (CAGR) of approximately 53.4 percent. Read this article to get updated information about top core banking software companies. 

What is white label neobank?

White label neobank refers to an end-to-end banking model employed by fintechs that uses data provided by traditional financial institutions. It is a collaboration in which traditional banks grant third-party companies such as fintechs access to their application programming interfaces (APIs). 

These fintechs leverage this access to develop innovative financial products on top of the infrastructure already in place.

Building banking software from scratch is costly and time-consuming. White labeling saves developers time by providing them with a digital platform to develop their software. Banking-as-a-Service (BaaS) is another term for this. 

White label neobank platforms enable businesses without banking licenses to create unique financial products by leveraging the licenses of traditional banks. This is referred to as a neobank with a front-end focus, while stand-alone neobanks operating under their banking license are called full-stack neobanks.

These neobank vendors create payment platforms that are fully customizable to the neobank’s requirements. Businesses can use this software for marketing their products under their unique brands. 

Apart from banks, accounting, payroll, logistics, healthcare, and food delivery are some of the other industries that leverage white-label platforms to scale their operations.

Top banks are moving into the BaaS sphere to ward off competing fintechs and other digital banks. Opening their APIs provides another revenue stream for these banks. Potential revenue from this source could reach about $2 billion in the UK by 2024. An example of a white label neobank vendor is SDK. finance offering a neobank platform. 

Neobank vs. digital bank: how they differ

While the terms neobank and digital bank are frequently used interchangeably, they are not synonymous. Let’s clear up what are the key differences between these notions before we move on any further.  

Benefits of using white-label neobank platforms 

Using a ready-made neobanking platform has numerous advantages.  We’ll discuss what these entail in this section.

Faster launch

Time spent planning and building a digital retail bank becomes less by patronizing white label solutions vendors. These platforms offer you a ready-made product that can help you launch your service in record time.

Lower costs

Utilizing the white label neobank system provider’s platform saves you research and development costs. The process is fast-tracked, and the money can be spent elsewhere.

Check this article to xplore how do neobanks make money.

Focus on core business

Neobank solutions allow you to focus on the important aspects of your business. Your product or service with your branding becomes easily available to the public. Once onboarding and training are complete, you can launch your product.

Expanded offerings

Using a neobanking platform helps expand your offerings quicker. The time spent developing a unique product is reduced. White labeling drives innovation in the digital payments space, and so you are always at the forefront of debuting exciting products.

Best neobank solutions to launch your business

You are likely to run into some technical difficulties when starting a neobank. To ensure a stable and secure platform to build your product atop, here are some of the top neobank software options:

SDK.finance 

SDK.finance is the first on the neobank solutions list as this happens to be our blog:-), plus, as a neobank vendor, we aim to assist customers in rapidly launching your neobanking product by developing white-label solutions, such as digital retail banking software. SDK.finance is driven by a mission to provide digital financial services to every citizen across the globe. We utilize API-driven developments to design efficient and seamless banking and payment solutions for neobanks and other financial service providers. 

What we offer

• Digital wallet software
• Software for neobanks

Watch our demo video of the SDK.finance Platform to explore how manage currencies and digital assets, configure exchange rates, monitor system accounts within one system. The SDK.finance Platform is a FinTech multitool helping businesses of all sizes launch their financial and payment products in record time:

RadarPayments 

RadarPayments is one of the best neobank solutions with a fully customizable Saas platform. They specialize in building competitive financial products for neobanks, digital banks, payment service providers, and acquirers. RadarPayments, via one of its flagship solutions, Tippay, which was released in 2021, offers banks a solution that allows for greater tipping convenience. The tool helps banks to reach out to prospective clients while also earning extra revenue by charging a small fee for each tip submitted. RadarPayments also provides multiple payment options that are secured, customer-focused, and compliant to your specifications but at a cost-friendly rate.

What they offer

• Integrated payment solutions
• Swift instant payment support
• Contactless payment solutions
• Fraud management
• Payment portal solutions for on-the-go commerce

Mambu

Mambu is a cloud-based neobank solutions system that enables banks and financial institutions to conduct and manage financial transactions. Businesses may design, configure, and deploy banking and lending services using the integrated composable banking system by interacting with numerous external resources through APIs. According to Businesswire, Mambu, and a global provider of cloud payments and financial messaging solutions, Volante Technologies, announced a game-changing alliance to help banks and lenders in swiftly modernizing their banking and payment infrastructures. The strategic partnership will allow joint clients to accelerate the launch of new payment products and services without the need to remove and replace existing systems.

What they offer

• Online banking
• Private banking
• Core banking
• Multi-user accounts
• CRM
• API integrations with Backbase, Ondato, Zenoo, Infinitus, Bankingly, and more

Optherium

Optherium is a top neobank software that is backed by its own blockchain. The SAAS platform provides an ecosystem of products and services built on the technology of a decentralized private blockchain network. Customer-facing solutions from this white label neobank include digital banking, datavault, and regulatory technology (regtech). Optherium products also enable banks and corporations to operate under their own or third-party API and bank licenses.

What they offer

• eWallet/Mobile App
• Digital asset management
• OPEX, an internal liquidity reserve token

Comparison of top neobank software solutions

Wrapping up

So, neobanking has established a foothold. The neobanks’ future remains bright in a world that craves greater convenience and digital innovations. Having your own branded digital transactions software has become possible and cost-effective thanks to neobank platform vendors like SDK.finance. Research and development can now be contracted to established and reputable neobank system providers. Additionally, the opportunities for neobanks to have a globally diverse customer base are limitless.

References

• https://www.statista.com/statistics/1270406/neobank-account-holders-us/
• http://theaseanpost.com/article/banking-southeast-asias-unbanked-0
• http://www.philstar.com/business/2020/07/17/2028480/512-million-pinoys-remain-unbanked-bsp
• http://www.statista.com/forecasts/1138501/mobile-internet-penetration-forecast-in-the-philippines
• http://www.statista.com/outlook/dmo/fintech/neobanking/indonesia
• http://www.statista.com/outlook/dmo/fintech/neobanking/malaysia
• http://www.gomedici.com/research-categories/india-fintech-report-2020
• http://www.statista.com/statistics/1229799/india-smartphone-penetration-rate/
• http://www.worldbank.org/en/news/press-release/2018/04/19/financial-inclusion-on-the-rise-but-gaps-remain-global-findex-database-shows
• http://www.fdiintelligence.com/article/76565
• https://www.ft.com/content/7f2a7677-78f5-4a1b-92ec-fed3c910800e
• https://www.grandviewresearch.com/industry-analysis/neobanking-market
• https://thefintechtimes.com/tippay-brings-contactless-tipping-to-an-increasingly-cashless-society/
• https://www.businesswire.com/news/home/20220119006112/en/Mambu-and-Volante-Technologies-Join-Forces-to-Pioneer-Cloud-Native-Banking-and-Payments-Modernization

The post Neobanking: Stats, Future & Top Software Solutions in 2023 appeared first on SDK.finance - White-Label Digital Banking Software.

As customers demand more control and autonomy over their finances, and in view of the pandemic that locked so many of us inside, banks are now introducing more customer-friendly core banking solutions to boost customer satisfaction and win more loyal customers. Companies like Oracle and IBM have also introduced automation and advanced data processing to fine-tune operations and increase their knowledge base.

More and more often, fintechs that strive to keep pace with fast-evolving market are investigating what is core system in banking going to provide them in case it is implemented – and whether it’s worth the effort. 

So, if you are pondering whether to adopt a core banking solution, let us explore the concept and importance of a core banking system in details. Read on to discover core banking advantages and disadvantages.

What is core banking?

Core banking is a back-end system that connects multiple branches of the same bank together to deliver operations like loan management, withdrawals, deposits and payments in real-time.

What does core banking mean?

The term CORE stands for Centralized Online Real-time Environment, which implies that the customer can experience the bank as a single entity, regardless of their location – with the aim to provide more independence for the customers in terms of using their accounts and conducting transactions from any location in the world.

What are IT core banking services?

The key core banking services include new accounts creation and customer relationship management, interest calculations, deposits and withdrawals processing, loans issuing and servicing etc.

How does core banking work?

A core banking system comprises back-end servers that handle standard operations like interest calculation, passbook maintenance, and withdrawal.

When a customer withdraws money from a branch or an ATM, the application sends a request to the centralized data center, which then processes the request and authenticates the operation.

Source: Bangaloreicai.org

The data center contains the database, an application server, a web server, and a firewall to protect the system from malware attacks. Banks can host their data center locally or on the cloud.

Core banking software market size

The global core banking software market was valued at USD 10.89 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 9.3% from 2023 to 2030. The rise of the market is due to the increasing integration of technology for basic banking transactions and services.

As the core banking landscape evolves with these prominent trends, the market is poised for significant growth. The increasing adoption of digital transformation, cloud solutions, open banking practices and cutting-edge technologies such as artificial intelligence and blockchain are collectively contributing to the expansion of the global core banking software market.

Below, we delve into the statistics surrounding the global core banking market share:

Broken down by bank type, the market comprises small banks, mid-sized banks and community banks and credit unions. Large banks are expected to dominate the market share for core banking software during the forecast period.

What are the essential IT core banking features?

After analyzing the top banking software vendors, we’ve figured out the core banking features indispensible in a decent solution.

• Centralized dashboard

Bankers need a single-view dashboard to visualize the system in real time. Also, bankers and clients should have access to the same dashboard view; this will help diagnose and solve issues faster.

• Onboarding (with KYC features)

Before using the dashboard, the client must sign in to their account with a unique username and password. With KYC features, banks can verify identities of prospective customers when they register. The onboarding process should also be simple enough for users to complete without stress.

Watch SDK.finance Platform’s demo video to explore how to manage your users, ensure KYC compliance, and prevent fraud with the robust system back office. This video showcases real-life scenarios demonstrating the power of the Clients section:

• Two-factor authentication

The solution needs to offer two-factor verification to boost security and protect clients’ sensitive data.

• Push notifications

When building a core banking solution for mobile, use push notifications to deliver timely account updates to clients.

• Loan management

The core banking solution must allow customers to monitor their loans and schedule payments according to the specified plan.

• Interest calculators

For loan and mortgage payments, users need access to real-time calculators to help them make informed decisions. 

• Live chat

A live chat feature must be on the platform to help users contact support agents when they need assistance. Automated chatbots can also provide templated answers to frequently asked questions.

• Transaction management

Clients can customize their popular payments and P2P transfers to ensure that their contact lists remain updated. They can also use multi-currency exchanges to trade on their preferred currencies.

View the demo video of the SDK.finance Platform to see how you can streamline transaction management and guarantee financial compliance using our robust FinTech Platform:

What are the types of core banking systems?

Depending on the hosting, IT core banking systems can fall into the following categories:

1. On-premise solution. This system works on a locally-hosted infrastructure, providing the bank administration with several customization options.
2. Cloud-based core banking software – as the name suggests, it is hosted on the cloud. Sometimes, a cloud vendor offers the application as a Cloud as a Service (CaaS) on a pay-per-use basis. Other times, companies can move their local servers to the cloud to enjoy more flexibility.

Read this article to explore the world of open source banking software.

What are the core banking system advantages?

With a better understanding of the working principle and features of the core banking platforms, let’s explore their key benefits:

• Enhanced productivity

Core banking platforms increase operational efficiency by reducing the time it takes to connect with multiple branches. As a result, banks can process transactions faster, regardless of the client’s physical location.

• Improved security

Core banking systems use advanced encryption modules to protect the infrastructure from hackers and malware. On the client’s side, bio-verification and two-factor authentication also provide additional layers of security to the platform. These features help banks maintain KYC standards and comply with other banking regulations.

• 24/7 access to banking services

In this era of contactless payments, access to round-the-clock bank services is vital. Users can conduct financial operations anywhere and anytime since the core banking platform never goes offline. Clients can also contact customer support for assistance at any time. 

• Lower operational costs

Banks can rely on their core platforms to reduce operational costs since these systems require fewer human resources to function. Besides, the AI-powered infrastructure increases the completion rate of operations and reduces the chances of errors in documentation.

• Multiple currencies

Users can trade in multiple currencies instantly without needing to change large amounts at a currency exchange. 

Limitations of IT core banking solutions

Despite the amazing benefits of core banking solutions, these systems still have flaws.

1. Technical downtimes can disrupt regular banking operations, thereby frustrating clients.
2. Using a core banking system can introduce a single point of failure that affects all branches simultaneously in the case of a cyberattack.
3. Modern core banking systems can be expensive to buy and maintain, especially for small and medium-sized banks.
4. Legacy core banking software can leave the entire infrastructure vulnerable to system failure. The modernization effort will also cost a lot of money.

Why choose a core banking solution?

Despite the few limitations mentioned earlier, your bank still needs a core banking platform to streamline operations and maximize ROI.

SDK.finance can help you develop banking software using a ready-made backend FinTech platform to accelerate time to market. We provide a flexible banking core that serves as a foundation for building any PayTech products. 

Choose your development approach:

• Dedicated development team with more than 10 years of experience to bring your digital bank to life faster
• Self-service development with a pre-developed Platform by SDK.finance to support your technical team. The Platform is available as a cloud-based software by subscription and Source Code modes. 

Both modes allow you to accelerate the development of your banking software and focus on the customer and product experience.

Final words

Core banking financial services offer several advantages to banks and their customers. With advanced data analytics, bank administrators can improve ROI while maintaining client satisfaction at an optimum level. You can also rely on automation to keep your application’s infrastructure running. And most importantly, modern core banking solutions will protect your company’s and client’s data from hackers.

The post What Is Core Banking: Definition, Features, Benefits appeared first on SDK.finance - White-Label Digital Banking Software.

But then the following questions come to mind: what is neobank? What are the features of neobanks? What are the pros and cons of using the services of neobanks? Stick along as we provide answers to all basic questions relating to neobanks.

What is neobank? 

Neobank is a species of online FinTech institution that offers basic banking services by implementing cutting-edge technology. Unlike traditional banking institutions, neobanks offer banking services strictly online, via mobile apps, or online banking. While they possess no physically identifiable branches, they afford the customer avenues to open an account seamlessly, control their finances in real-time, and make online purchases from anywhere. 

Neobank vs traditional bank

Neobanks and traditional banks are two different types of financial institutions, each offering distinct features and approaches to banking services. Neobanks, also known as digital banks or challenger banks, are fully digital, technology-driven financial institutions that operate primarily through mobile apps or online platforms.

Traditional banks are established financial institutions with a physical presence, including brick-and-mortar branches. They have been operating for many years and offer a wide range of banking services. It’s important to note that some traditional banks have also embraced digital transformation and offer online and mobile banking services. Likewise, neobanks may partner with traditional banks to leverage their established infrastructure and regulatory compliance.

Digital bank vs neobank: is there a point of divergence?

Neobanks should not be confused with digital banks. Though similar in some ways, both are different forms of financial institutions. While digital banks are usually an offshoot of traditional banks with physical branch networks and offer a wider range of banking services, neobanks are strictly online fintech institutions with no physical branch networks.

Neobanks are sometimes called challenger banks because they compete with incumbent banks and provide services to areas not sufficiently covered by the conventional banking system, without any stress, and at zero fees.

Key neobank features

• They are cost effective
• Offer personalized financial services through A-I-powered technology
• Do not have any physical branch network
• It also operates a 24/7 financial service system

How neobanks operate

The neobanks’ modus operandi is very simple, and the same goes for the requirements needed to start one. Neobanks attempt to distinguish themselves from regular banks on a basic level, making themselves more appealing to technologically driven consumers (especially Gen Z and millennials) who are increasingly becoming dissatisfied with the bureaucratic nature of traditional banks.

Source: Nielsen (2019)

One of the foundations of neobanks is the absence of a physical branch network, and as such, they perform their operations strictly within the online space, thereby lowering customer expenditure. Neobanks employs AI-powered technology to collate customer data to provide personalized banking services to users.

The vast amount of data they acquire from their consumers is used to understand their users better, identify problems, and develop requisite solutions. Because their systems are also significantly computerized, collecting and analyzing data and understanding how their clients interact in the financial ecosystem becomes much easier.

How do neobanks make money?

Image source:dashdevs.com

So, how do neobanks make money? According to the stats by Research And Markets, the global neobanking market is projected to hit $333.4 billion by 2026, at an annual growth rate of 47.1%. The projected growth is impressive, given that they are quite new, have no identifiable physical structure, and haven’t built a substantial confidence level. The big question then is, how do they stay profitable?

Neobanks operate a business model different from conventional banks. A large percentage of their profit is generated from interchange fees paid by businesses whenever customers purchase with a neobank’s debit card. For instance, Chime, a popular neobank platform in the US, has a user base of around 12 million and issues an actual debit card to registered users. Whenever users make a purchase using the Visa debit card, a fee of 1.5% is charged by Visa. Visa, in turn, pays a fraction of the charges to Chime neobank.

Another important aspect of how do neobanks make money is that they also profit from interchange fees whenever users make a purchase using a neobank credit card. A bit of context is the Nubank business model. Nubank is a neobank based in Brazil that boasts more than 40 million users. They offer credit card services and charge a fee for every transaction performed by their user. They also profit from the interest charge on users’ over-drawn credit balances.

Furthermore, neobanks benefit from interest charges on deposits and account opening. They also profit from the interest earned on ATM fees. Read this article to get more information about digital banking. 

Now we are quite familiar with the concept of neobanks, their features, mode of operation, and revenue generation. Let’s look at some neobank pros and cons.

Neobank business model

Neobanks, much like traditional banks, cater to specific niches and even entire nations. The crucial question arises: What business model ensures organizations remain competitive in this dynamic landscape?

There are 5 neobank business model types:

Ecosystem-led model

The ecosystem-led model emphasizes connectivity and collaboration among different financial applications by leveraging API technology. This approach enables seamless communication and integration.

Interchange-led model

Interchange-led model neobanks charge transaction fees for each monetary transaction. For example, Chime in the USA and Neon in Brazil earn a portion of Visa fees during transactions made with their Chime Visa.

Credit-led model

The credit-led model relies on credit card services as a foundation for growth and profitability. It generates revenue through transaction fees and profits from carried balances and associated interest rates. Nubank in Brazil is an example of a neobank that adopts this model.

Asset-led business model

The asset-led business model allows neobanks to offer savings accounts and deposits, such as high-yield savings and certificates of deposits (CDs). Marcus, by Goldman Sachs on Wall Street, exemplifies this model by focusing on niche products and emphasizing specialization over a diverse range of services.

Product extension-focused approach

In contrast to the ecosystem-led model, the product extension-focused approach eliminates barriers to financial services. Robinhood provides a notable example, introducing Robinhood Gold, a product extension offering in-depth market analysis through a subscription-based model. This strategy enhances Robinhood’s competitive position by expanding its product offerings.

To remain competitive in the dynamic neobanking sector, it is essential to understand and strategically adopt these diverse business models.

Advantages of neobanking

Lower operational costs

Neobanks operate at a cheaper cost because of their lack of physical branch networks and fewer personnel. Typically, the capital savings associated with their no-branch business model are passed down to their consumers in the form of cheaper rates and no monthly fee payments.

Effortless banking methods

Neobanks have changed banking by moving away from the old model of visiting a bank branch and queuing for hours before transacting, to a system of digitally tailored self-service ideas. With neobanks, all you need is a mobile app that enables you to conduct simple financial activities from anywhere. Read this article to get information about top neobanks.

Speed

Neobanks also boast of speed in their method of service rendering. With a neobank, you could open an account, make a deposit, transfer money, and make online purchases faster than you could locate a traditional bank branch.

Use of technology

Neobanks use AI-powered technology to provide upgraded services to users. They also use AI-powered technology to understand customers’ interaction with their service and thus provide quality services tailored to their specific needs.

More efficient for international payments

One of the benefits of neobank solution in terms of performing an international payment is that they only require you to open an account with them and then use your cards for international transactions. Traditional banks, most times, would require you to perform some form of upgrades to your account before being allowed to perform international transactions.

Disadvantages of neobanking

Lack of bank charter/license

Most neobanks lack legal documents empowering them to operate as a bank. They must partner with other banks to back their product and services. As a result, a duty of due diligence is expected from users to ensure that the neobank platform of their choice is partnered with a bank that FDIC insures.

Absence of physical branches

This is one of the most limiting factors of neobanks. As a result, they seem impersonal and do not engender trust (especially among the older generation).

Use of technology

High-end technology employed to provide financial services may pose some difficulties to the older generation, who may not be in tune with modern technological advancements.

Bottom line

Neobanking was born to meet the radical digital changes in the finance sector, and so far, it has lived up to expectations. Now, customers benefit from neobank features; they no longer have to undergo the rigors of performing basic financial transactions occasioned by traditional banks when they can access the service of a new bank and perform their financial transactions on their terms.

For intending owners of neobanks, SDK.finance offers digital retail banking software to help you build a neobank and design it to meet your specific requirements.

Watch the SDK.finance Platform’s demo video to explore how you can simplify transaction management and ensure financial compliance with our powerful FinTech Platform:

The post What Is Neobank And How Does It Make Money? appeared first on SDK.finance - White-Label Digital Banking Software.

Over the past few years, the banking sector, like other industries, has started adopting cloud-based computing for daily banking operations.

But despite the current shift towards cloud-based banking, some financial institutions are still hedging to migrate their operations to the cloud exclusively — and for good reason.

But what is a cloud bank, and why should financial institutions not rush to implement it?

In this article, we explore the challenges and benefits of cloud-based digital banking. But first, let’s define relevant terms.

What are cloud banking services?

Cloud banking services refer to deploying (and managing) banking infrastructure in order to control banking cloud services and financial operations without dedicated physical servers.

Before going any further, let’s define what is a cloud bank. 

Banking cloud services are any banking infrastructure that exists on the cloud. 

The SDK.finance cloud solution on AWS

SDK.finance offers a ready-made FinTech Platform to help you bring your PayTech product to market in the shortest possible time. Our cloud solution can now be accessed through the AWS marketplace. This allows our customers to benefit from the scalability, security, and cost-effectiveness of the AWS cloud infrastructure while ensuring the protection of sensitive data and compliance with data localization regulations.

How does cloud banking work?

Cloud service providers (CSPs) like Microsoft, Google, and Azure handle the complex cloud infrastructure and allow banks to use it for specified fees. 

Depending on the company’s size and budget, a CSP can offer private, public, or hybrid clouds. 

Some of the standard cloud service models include:

• Business Process-as-a-Service (BPaaS) — provides services that cover everyday operations like billing and human resources.
• Infrastructure-as-a-Service (IaaS) — delivers a fully-fledged core banking infrastructure that handles business operations and software integrations.
• Software-as-a-Service (SaaS) — delivers cloud-based banking software for accounting, invoicing, customer relationship management, etc.
• Platform-as-a-Service (PaaS) — offers a cloud-based core banking platform for app and database development.

Advantages of cloud-native development for banking 

Now that we’ve established a relationship between cloud computing and banking, let’s explore the advantages of migrating your bank to the cloud.

Affordability

When you host your banking infrastructure on the cloud, you won’t have to pay server costs; the cloud service vendor handles maintenance. Instead, your financial institution only needs to pay a subscription fee. 

Besides, modern CSPs use a pay-per-use model, which is a cost-efficient option for banks of all sizes. 

Compatibility

When your banking services run on the cloud, compatibility won’t be an issue because cloud infrastructure works on all platforms. 

Conversely, banking organizations that rely on legacy software might experience compatibility issues when modernizing their infrastructure.

Convenience

Most banks are shifting to cloud-native banking solutions because they are convenient to use. At the same time, CSPs now provide data management services to manage complex processes within the bank.

Popularity

As it stands, Amazon, Microsoft, Google, Alibaba, and Huawei dominate over 80% of cloud banking market shares, which signifies that these giants are backing cloud-based banking.

With that in mind, financial organizations can choose any CSP that meets their requirements and budget.

Fraud detection

Financial institutions cannot tolerate any data breaches; your organization needs airtight data management systems to protect sensitive information from criminals.

With cloud banking services, you can protect your digital retail bank from malicious third-party access. Cloud-based solutions can also help digital banking institutions detect irregularities like identity fraud and money-laundering operations.

Analytics

Since FinTech vendors offer cloud-native development for banking with built-in data management systems, banks can enjoy automated data reporting and analysis. 

Environmentally-friendly

Managing banking operations requires significant computing power, which affects the environment negatively. But with cloud computing, you can maintain an eco-friendly infrastructure for your internal and external services. 

Challenges of cloud-native banking 

Despite the eye-catching promises of cloud-based core banking solutions, the challenges to this model are enormous. 

Let’s explore the risks of cloud-based banking: 

Regulations

Banks and other financial institutions must abide by various local and global regulatory guidelines regarding data sharing and usage. At the same time, cloud vendors offer a different set of compliance rules, which conflict with established financial regulations.

As a result, banks must hire professionals to cross-reference these conflicting regulations in order to avoid fines. 

Here is a quote from a London bank CEO as reported by Cloudera’s managing director, Dr. Richard Harmon:

“Banking in the cloud consists of the largest, and most significantly regulated industry in the world, running on an entirely unregulated infrastructure.”

This quote encapsulates the sentiment of conflicting regulatory standards in handling cloud-based core banking solutions.

Security 

Despite the promises of airtight security and privacy, the cloud is not a haven for sensitive user and company data. 

Companies like Google are infamous for selling user data, which goes against GDPR compliance standards. Although the company claims to protect banking data, no guarantees exist that they keep to their word.

Data migration

Moving the entire architecture is a momentous task that most companies struggle to handle. In fact, Bloor Research carried out a study that showed that 38% of all data migration efforts end in utter disaster.

If your organization is migrating from obsolete legacy software, finding qualified cloud computing experts becomes a menacing headache.

Besides, migrating cloud-based banking services can take several months, depending on the bank’s size and underlying infrastructure. And in the hands of incompetent migration technicians, the process can disrupt banking operations significantly. 

Read the article on Banking Legacy Systems Migration to explore how to modernize the payment system.

Outsourcing risks

If a bank doesn’t have a properly-trained IT department to implement the cloud-based banking core, it would have to outsource the migrations, which presents additional security risks.

Outsourcing means that the bank hands over the reins of the entire banking architecture to a third party. By doing so, the bank or financial institutions endanger their users’ data.

Human error

Although most modern cloud banks rely on automated algorithms, humans still write the code and assemble the core infrastructure. 

Sky News reports that “sloppy coding” introduces over 1 million weaknesses in the software infrastructure that hackers can exploit.

Besides, a buggy code fragment can crumble the entire cloud infrastructure when creating a neobank platform. 

So, you can never legislate for human incompetence and how it will affect your bank’s operations.

Unforeseen circumstances

Apart from human error, unforeseen circumstances can crush your cloud-based banking solutions.

Server downtimes and cyberattacks can render the application unusable. And since you don’t have any control over the vendor’s infrastructure, your organization will remain in limbo until they fix the issue.

Cloud-based core banking vs. on-premise software

Financial entities are still at odds about migrating to cloud banks or adopting on-premise software. However, the truth remains that both options have several accompanying challenges and risks.

Source: Deloitte

On the one hand, cloud-based banking services are scalable because they are public, giving your organization less control over the system. On the other hand, your organization can adopt a private banking infrastructure to maintain control.

Essentially, the best option lies in the middle — a hybrid, on-premise cloud-based banking solution that internal teams can deploy and adjust.

And why is this the better option?

1. Your IT department can handle internal operating models to suit your bank’s needs.
2. Your financial organization can migrate to the cloud at a favorable pace.
3. You can scale financial operations at your convenience.
4. On-premise cloud infrastructure allows you to adjust the system to compliance standards and regulations.
5. With on-premise solutions, you can add extra encryption and security protocols to protect sensitive user and company data.
6. You can customize data analysis and handling based on specific use cases.
7. Business teams and risk managers can make informed decisions to curb unnecessary billing expenses on cloud-based services.

Conclusion

The future of banking is in cloud-based systems, and the involvement of tech giants like Google, Microsoft, and Amazon consolidates this fact. But before adopting cloud-based banking solutions, explore the challenges, benefits, and billing costs. 

Alternatively, invest in on-site digital banking solutions tailored to your banking requirements. That way, you end up with a banking infrastructure that meets all industry regulations and compliance standards. Besides, you gain absolute control over banking data analysis, risk assessment, and daily operations. 

If you need help implementing on-premise or cloud-based digital banking solutions for your financial institution, reach out to us right away. Our software will help you build a banking or payment product within a short timeframe.

References

• Banks now rely on a few cloud computing giants. That’s creating some unexpected new risks 
• Cloud computing transformation in banking risk 
• Clouds Bring New Risks To Financial Services
• Banks take steps to reduce potential cloud computing risks, Google survey 
• How much risk do banks face with cloud computing? 
• BOE Warns on Risks of Banking’s Reliance on Cloud Computing 
• Cloud Computing in Banking 
• Cloud Banking: Financial Services and Banking of the Future 
• Why do so many data migration projects end in disaster? 
• Banks Under Attack: Tactics and Techniques Used to Target Financial Organizations – Security News 

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