How To Start An Online Bank From Scratch? - Beginner's Guide

The new digital world now has almost all offerings on the internet. People are getting services and products from anywhere using the internet. The service delivery system has also no time bound which may be another reason for the growing popularity of online services. Especially, the new generation is also favouring online systems to meet their needs. Like many other services banks and financial institutions are also using digital solutions. To build an online bank you can use a core banking solution and start your own digital bank. It is challenging to create a digital bank from scratch. But the good news is that you do not need physical infrastructure like buildings and vaults. In this blog, I will explain how to start an online bank from scratch.

Top Tech Trends in the Banking Industry

In 2023, over 66% of the US population used online banking, and this is projected to exceed 79% by 2029. Over the years, technological improvement has played a good role in this successful online banking adoption. Here are a few tech trends that make the banking service touchpoints satisfactory.

1. Opening an Online Account

Bank account creation using a Mobile app or KYC has become popular. Introduce an online account creation system to make online banking services easily available to users. This will ensure bank account opening from anywhere and at any time.

2. Information Encryption

An online bank is an internet bank in the digital banking world. The data transaction process is encrypted so that no unwanted user can access your data. To create an online banking system, you should maintain a high level of security. It is important to have good security for online banking.

3. Login Security

The login system of an online bank should maintain all security, such as payment or other transaction timeouts for inactive websites or mobile applications. You can introduce a biometric login system with your mobile banking app. This will create a smart user experience.

4. Credentials

Spamming and fraud have become common in the digital business industry. To create proper authentication and make your bank trustworthy, get the necessary verification from the relevant authority. If possible, get extended validation SSL. It will ensure customers that your website transaction system is very secure.

5. Computerised Intelligence

AI is revolutionising businesses, and online banking is no exception. By implementing AI features like a live chatbot on your site, you can provide a seamless and comfortable user experience, making banking tasks easier and more convenient.

How To Start An Online Bank From Scratch? - Step By Step Guideline

Starting an online bank from scratch involves many tasks. Here, I have tried to organise all the mandatory tasks into a step-by-step process. I hope you will get a good idea of the new online banking creation journey.

8 steps to start an online bank from scratch-

1. Research Your Audience

The first thing to do for starting an online Banking business is to select the right audience. Do research within your demography to understand the potential users' age range, their intentions of using online banking, and how capable they are of using digital banking systems.

Take your time and do in-depth research to understand your audience. You can hire a specialised agency that works on this type of research. Their expertise can help you with more accurate data, which will greatly help you identify your audience. You can also look on social media and forums to understand the demand for online banking services.

Create a customer persona by acknowledging all facts and statistics. Then forecast the behaviour of potential audiences towards the digital banking system. This will also help you develop your bank's digital platform and offer banking services to customers. So, to succeed in the banking service industry, you must pay attention to audience analysis.

2. Manage Necessary Funding

Without a large amount of money, starting a digital bank is impossible. Funding becomes the first obstacle to establishing online banking for many. So, finding secure sources of money is crucial before investing your last amount of money in the banking project.

Try to communicate with angel investors and venture capitalists to get a big amount of money. You can also get money by borrowing from your dear and near ones. Another good source of money for your banking project could be shareholders. Offer other rich people the opportunity to become the initial shareholders of your online banking business. You should have the minimum required money, which is necessary to start an online bank according to the regulations of your country.

If you can manage that money, your banking business's journey can then see the light. In the fundraising bargaining process, do not sell shares for abnormal profit and equity. Also, be careful of the royalty amount and time if any shareholders ask for that. So, having good financial knowledge is also necessary to start an online banking business.

3. Analyse Your Competitors Journey

Creating an online bank from scratch is not new. Many businesses are already providing online banking services globally. Review their core banking solution and keep notes for mandatory services you need to include. Follow the path of the successful one. Learn about the journey to becoming a successful online bank. Their failures are also a lesson for you.

• What advantages are the early movers taking in the online banking industry?
• How are they coping with new banking policy updates?
• What is their weak point, or what are they struggling with?
• What factors affect customer satisfaction and dissatisfaction with online banking?

These questions will help you to create the best online banking services to solve customer problems. When you can solve an online banking problem, users will look into your service, and ultimately, they will be satisfied with your online bank. So, do your competitor analysis carefully.

4. Design Your Products

In this step, you should design your product for your internet bank. Create the basic design for your bank's website or mobile application. List the features you want to add. Learn how your potential customers are demanding online banking services that you can fulfil.

Include all the core banking features for your Internet bank. Fix the services you want to provide initially. Add money, transfer money, and pay—these types of services should be included for Internet banking.

Here are some common customer expectations you should consider while designing your banking services  -

• The online banking service should be around the clock.
• Make hassle-free bank account registration.
• Making money transactions to another bank account easy.
• Easy Mobile top-up and other utility bill payment facilities.
• Proper money management feature.

5. Develop a Business Plan

Without a proper business plan, a business can not sustain itself in the long run. A business plan is like a core business document. When you are starting an online bank from scratch, create a business plan with specific actions for the online bank. Take short-term, medium-term and long-term steps to sustain and grow your business. Based on your strategic documented plan, investors may decide to invest in your bank.

There are various strategies for creating a proper business plan. No matter which strategy you follow, remember to include your targeted customer, your solutions, standard fees and your unique selling propositions. Give customers something new to attract them to your business. Create a value that stands in the long run and can generate other relevant values for online bank customers. Also, be ready to be adept at the new challenges of online banking.

Take at least 3 months to properly define a business plan for your bank. Communicate with the financial experts because they can help you with real-world situations. Their valuable insights on online banking can provide a clear understanding of the future of the industry. Also, you can understand what changes you need to make to your plan and how to be ready for future banking challenges.

6. Apply For An Online Banking License

It is challenging to get a license for Internet banking if you are starting from scratch. You can apply for a license before starting to build the platform for the online bank or after readying everything for providing banking services. No matter when you apply, the process of getting a digital signature for a bank establishment is not a matter of flash.

• Get a license from the local authority for the initial start
• Get an international banking license for offshore banking
• You can also collaborate with an established bank and act under them.

You have to know the rules and regulations for operating banking services. Many areas or governments have their own rules, so be aware of specific regional rules, too. Create a proper banking policy for your Internet bank that aligns with the authority's directions. Pay the initial capital when all documents are ready.

Most regulatory bodies may give you licences only after they see your prototype banking service system and strategy. If needed, get professional help for financial sectors to avoid any hassle.

7. Develop and Release Your Banking Platform

There are two ways to build your banking platform for your customer: using a prebuilt core banking script or building from scratch. If you want to build your banking platform from scratch, you can build an in-house team of expert developers, hire a software development company, or hire freelance developers. You should develop a website and a mobile app to provide convenient services.

Banking software providers have a special team to work on finance-related products. They have a better understanding of financial institutions. They can work better for the development of your desired online banking platform. Moreover, their software development process ensures you get everything you want on time and with proper documentation.

The big advantage of currently available baking software is that it requires only a one-time purchase with a lifetime software license. You can also customise it further to meet baking customer needs.

Also, ensure that you have a very secure mobile app so that your customers can quickly access their money and make transactions, use QR code payment, and access other mobile banking facilities.

Many issues may arise when fully implementing your online bank. After beta testing with a select group of people, get feedback and update your banking platform. Then, when user experience and satisfaction reach a standard level, go for the final release.

Account takeover fraud is increasing daily, so there is no chance of existing security issues for online banks. Create a small IT team to keep every service up to the mark with full security. This will also increase the trustworthiness among banking customers.

8. Start Promoting Your Online Bank

As the purpose of starting an online banking business is to make a profit, promotion is another step in this journey. You need to create a short—and long-term promotion plan. First of all, create an awareness program so that people know about your bank. It can start with a friends and family get-together. 

To make this online banking business profitable, create a marketing strategy. You can start the first promotional campaign when you launch the digital banking platform. You can arrange a big event to launch your online bank.

Creating a brand for your newly launched online bank will take time. To boost this branding process, take the necessary initiatives. You can follow your competitor's branding and marketing strategy. Make a presentence by posting and engaging with people on popular social media where your competitors are also present. 

For the bank website and apps, perform search engine optimization to increase organic reach. Collect emails and do email marketing to offer your bank service to potential customers. 

Paid advertisements are the quickest way to reach more potential customers in a short time. So, you should also keep a budget for social media and Google advertising for your new bank.

Conclusion

Most of the global population uses traditional banking, and online banking services still have a long way to go. To stay in the customer's mind, show the transparency of your digital bank. Make necessary decisions regarding changing banking policy and develop strategies to cope with any changes.

Undoubtedly, starting an online bank from scratch is very challenging. But if you do your homework well and follow proper guidance, creating a digital bank will not be that difficult. Customers' demands may change over time. So, understand your customers' demands and provide services according to that. Be careful about technology updates and security measures for online banking software.

After reading this blog, I believe you now understand how to start an online bank from scratch. Still, if you need any information regarding setting up an Internet banking platform from scratch, contact us.

Have a great online banking business!