What does it take to create your own neobank?
The Fintech industry is flourishing than ever. Investments, cryptocurrencies, cashbacks and the like have come into common use, and not just that of millennials. But how much effort and money does it take to establish and grow your business? own project? Take the case of neobanks, which are the most lively and frequent example of a FinTech startup.
All founders are aware that the main tasks are to build a team, get a license and start coding. It sounds simple: IT professionals, lawyers, managers, a platform and enthusiastic owners who believe in their ideaâ¦ but no: the project is launched but there are no clients.
Here are the basic reasons why the project may not meet expectations:
1. From the start, not all startups see their future and do not understand the prerequisites to support the project. One of the segment’s strategies is to leverage substantial investments in multiple cycles, improving services and software to attract more users. But does everyone manage to keep investor interest year after year? The answer is obvious. For example, apart from its tremendous success and a number of successful investment phases, Revolut faced some expense issues over the past year. Or take ZAbank: $ 193 million invested in its incorporation has not paid off despite the breathtaking growth and increasing popularity with users. Its founders succeeded in drafting a five-year investment recovery plan. Having raised 650 million euros in 2020, the Swedish KLARNA is pursuing an aggressive policy of popularizing its services to guarantee the fastest possible return on investment, that is to say that the founders are aware that it is is a long-lasting game.
2. High software cost. Fintech is above all a software product whose budget sometimes exceeds $ 500,000. Therefore, not all startups are ready to incur such costs until the business becomes profitable.
3. Competition. The business plan mechanism in this industry must be flexible in its response to current challenges and follow trends, offering the best market conditions and prioritizing service; otherwise, it is doomed to failure. This applies to anything associated with NFC, blockchain, cryptocurrencies, etc.
4. Compliance of regulators. The legislation is quite prescriptive and complying with it also requires significant expense, such as state-of-the-art user retina identification or operations that comply with financial supervision regulations.
5. From the first-hand experience at SBSB, I can say that there have been two e-money licensing projects in a row in 2020-2021 that have been kept on ice due to internal contradictions within the founder. Even with the business already established and the documents prepared, the project is put on hold due to personal innuendo at the start of the partnership relationship. It is therefore very important to choose partners with full knowledge of the facts, making sure you speak the same language and share the values ââand expectations of the company.
Looking at the 2020 statistics, UK issues 84 payment licenses, Lithuania – 23 licenses, Spain ranks third out of its 9 licenses. Germany and Sweden – fourth with 7 IPs. Estonia – finished fifth in the standings with 3 licenses. But we all know that the licenses issued do not mean the effective incorporation of 82 or 10 neobanks in a given country. Only a few of them really gain consumer recognition and get ROI and profit.
So what’s the catch? Why does someone hit the jackpot and others sink to the bottom?
Frankly speaking, a committed team, a well thought out business strategy, flexibility, clear product positioning and a suitable market are key. All members and founders of the company must keep pace and be prepared for stiff competition. Oleg Tinkov, Oleg Gorokhovskiy and Dmitriy Dubilet, Nikolay Storonskiy, Sebastian Siemiatkowski, Niklas Adalberth and many other founders of FinTech startups are daily immersed in their projects. So you should think twice before starting a similar business: it comes with huge liability with little promise of return for a number of years.