How to Start a Digital Bank in 2024

It`s no secret that many parts of our lives become digital, and banking is no exception. This means that the demand for and standards for digital banks is growing each year as customers seek feature-rich, efficient, and user-friendly solutions.

If you are looking for a guide into the world of digital banking and are considering entering it by building your own digital bank, this article is for you. Let’s begin your journey.

What is a digital bank, and what are its main features?

The definition of a digital bank is very simple – it is a bank that provides its services online. It offers the full range of core banking services found at physical branches: savings accounts, loans, and credit cards, but it primarily operates through websites and mobile apps. It means 24/7 access to banking services from any point on the map.

This level of accessibility led to a drastic rise in demand for digital banking services. Let`s take a look at some statistics:

1. Most consumers (71%) prefer to manage their bank accounts through a mobile app or a computer.

2. Over two-thirds of UK citizens (36%) have a digital-only bank account in 2024, up from a quarter (24%) at the start of 2023, according to Finder.

3. According to Statista, it is expected that the Net interest income for the digital banks market will display an annual growth rate (CAGR 2024-2028) of 10.34%, leading to a market volume of US$1,219.0bn by 2028.

So what features of digital banks should you consider if you decide to start your own digital bank? We would suggest starting with:

Secure authorisation

Both digital and traditional banks deal with the vulnerable and personal financial information of their clients. This means any problems with security are an immediate threat to a bank’s reputation. That`s why you should use a high-quality authentication system. In addition to the traditional banking systems (passwords and CVV codes), you can also consider adding two-factor authentication and/or fingerprint identification.

User-Friendly Mobile Accessibility 

Digital banks are primarily accessed through mobile devices, providing your users with the flexibility to manage their finances on the go. Making their experience intuitive and pleasant is extremely important. Your customers should navigate, perform transactions, and access account information seamlessly.

Real-Time Transactions

Your digital bank can offer real-time transaction processing, instantly updating account balances and transaction history. Instant peer-to-peer (P2P) transfers are also a plus, enabling users to send money to other users in real time. 

Multi-Currency Accounts

Some digital banks provide multi-currency accounts, allowing users to hold and transact in different currencies. This feature is beneficial for frequent travellers or individuals conducting international business. If you are providing banking services from anywhere in the world, you may as well free your clients from the need for constant currency exchange.

Customer support

Almost every customer eventually has some questions about the services they use. This means you should create a high-quality support service to ensure the clients receive all the information they need. With an evolving trend of AI assistants, you can provide 24/7 support to build a strong relationship with your customers.

Advantages of digital banking

Digital banking offers numerous advantages, making it an attractive option for many consumers. Let`s take a look at some of the key benefits of digital banking:

Convenience

One of the most significant advantages of digital banking is its 24/7 accessibility. Traditional banking hours often clash with individuals’ busy schedules, but digital banking eradicates this inconvenience. It allows users to manage their finances anytime, anywhere, using their mobile devices or computers. This eliminates the need to visit physical branches, saves time, and provides constant access to banking services.

Cost and Time Savings

Digital banks often have lower operating costs than traditional banks with physical branches. As a result, they can pass on these savings to customers through lower fees, higher interest rates, or other cost-effective services. By streamlining financial processes, digital banking also ensures process efficiencies, thereby saving consumers valuable time. 

Ease of Account Management

Users can open accounts, make transfers (preferably in real-time), pay bills, and perform various transactions with just a few taps on their mobile devices. Account management is streamlined, and digital interfaces make it easy to navigate and understand financial activities.

Innovative Features

Digital banks often introduce innovative features such as budgeting tools, savings goals, round-up features, and personalised financial insights. These tools empower users to take control of their financial well-being and make informed decisions. Digital banking can also integrate with other financial services. Consumers can link their bank accounts with payment apps, e-wallets, and other digital platforms, enabling effortless transfers and payments.

Security Measures

Digital banks invest heavily in security measures, including encryption, two-factor authentication, and biometric authentication, to protect users’ financial information. Advanced security protocols contribute to a secure online banking experience. Features such as the ability to lock or freeze accounts temporarily, report suspicious activity promptly, and set up transaction alerts further strengthen safety.

Digital banking trends

As we discussed earlier, digital banking is a trend itself, but there are even more things that make customers’ experience with banks quicker and more convenient. What are they?

AI and ML in banking

AI and ML are reshaping the whole finance sector by automating and fastening many processes, and digital banking is no exception. These technologies are widely utilised for personalised customer experiences, fraud detection, risk management, and the automation of various banking processes. You can read more about it in our previous article. Integration of AI chatbots is also a modern trend in the banking industry that can bring your customers’ experience to a new level.

Open Banking and APIs

Open banking is a financial concept that revolves around the idea of providing third-party financial service providers access to a consumer’s financial information through Application Programming Interfaces (APIs). Open Banking initiatives are gaining traction, fostering collaboration between financial institutions and third-party developers. This trend can enhance innovation, improve customer experiences, and promote seamless financial data sharing.

Neobanks

Neobanks, which operate solely online without physical branches, are becoming increasingly popular each year. These institutions are focused on delivering a streamlined and customer-centric banking experience, often with lower fees and innovative features. 

And if you find building a neobank from scratch time- and resource-consuming, you can consider a white-label solution. With a wide range of pre-built features, combined with thoughtful customisation and development, you receive a solution with the functionality to jumpstart your online finance business or get digital without heavy upfront investment. 

Voice Banking

The integration of voice-activated banking services is on the rise. Users can perform various banking tasks, check balances, and get information through voice commands, contributing to a more convenient and hands-free banking experience.

Gamification

Some digital banks incorporate gamification elements into their platforms to engage users and encourage positive financial behaviours. This could include rewards, challenges, and interactive features to make banking more enjoyable and educational. 

Gamification can also become an effective tool for introducing and simplifying complex financial concepts to customers. By breaking down intricate ideas into interactive and easy-to-understand components, banks can help customers better comprehend and grasp complex concepts.

4 Steps to start a digital bank

1. Market Research and Planning

It`s the first and one of the most important stages of any development process. By conducting thorough market research, you can identify target demographics, assess competition, and understand the regulatory landscape. Develop a business plan outlining your digital bank’s goals, unique value proposition, revenue model, and growth strategies. There are different questions you should ask yourself about your future clients. For example:

1. What services are the most used by your potential customers? 
2. What are their preferences in services they have previously used? 
3. What are their concerns about digital services they used before, and how can you help overcome them? 

2. Regulatory Compliance

Understanding and complying with financial regulations in the regions where you plan to operate is essential. Obtain the necessary licenses and approvals from regulatory authorities. Engage legal experts to guide you through compliance requirements and ongoing regulatory changes.

Some regulatory bodies can only license your product if you have a working prototype or proof of a business model. In contrast, others just give you a license before creating anything. To avoid any issues, it`s always best to work with an expert consultant in the banking technology sector for guidance.

3. Building a digital bank

This step is the most time-consuming and consists of its own stages:

Core banking system

The term CORE stands for Centralized Online Real-time Environment, meaning that customers can experience the bank as a single unit regardless of location. This system processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan, and credit processing capabilities, with interfaces to general ledger systems and reporting tools. You can find more information here.

User Experience (UX) 

You should always keep your end user in mind, so design an intuitive and user-friendly interface for your digital banking platform. Prioritise a seamless user experience across web and mobile applications. Consider features such as biometric authentication, chat support, and personalised dashboards.

Security Measures

Protecting customer data and transactions is a top priority, so you should implement advanced security measures. Include features like multi-factor authentication, encryption, and fraud detection systems. Regularly update security protocols to stay ahead of emerging threats.

Development

Develop a range of banking products and services that cater to your target audience, which you indicated in the first stage. This may include savings, checking accounts, loans, investment products, and innovative features like budgeting tools or round-up savings. 

You should also consider developing a feature-rich and secure mobile banking application for iOS and Android platforms. Ensure the app meets industry standards for security and usability. Regularly update the app to add new features and address any issues.

Testing

Conduct thorough testing of your digital banking platform to identify and resolve bugs or usability issues. Perform security testing to ensure the platform can withstand potential cyber threats. User acceptance testing is crucial to gather feedback and make necessary improvements.

Launch

Launch your digital bank with a comprehensive marketing strategy. Utilise online and offline channels to promote your services. Highlight key features, benefits, and promotional offers to attract the initial customer base.

4. Continuous Improvement

Continuously gather customer feedback and data analytics to identify areas for improvement. Regularly update your digital banking platform with new features, security enhancements, and improvements based on user insights.

Final thoughts

Building a digital bank requires a multidisciplinary approach involving technology, finance, compliance, and customer experience. It’s essential to stay adaptable and responsive to market trends and regulatory changes to ensure the long-term success of your digital banking venture.

But if you are looking for a trusted partner to start building your digital bank, consider Kindgeek. Since launch, we have provided core fintech banking and payment solutions as a software shortcut for businesses looking to launch their fintech products, from digital wallets to neobanks, accommodating startups and enterprise-level customers.