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Which license do you need to become a neobank?

For the past few years, there has been a major shift in how we bank. Technology is changing and so are our expectations of financial institutions. Many people now want to do more than just check their balance or make payments; they want to be able to save money, invest it, or use it with other services like mobile payments and bill pay. What does this mean for banks? It means that they need new strategies and new ways of doing business if they want to stay competitive in today’s market – including becoming neobanks themselves!

Which license do you need to become a neobank?

Do you want to be seen as a niche bank neobank is a new form of digital-only bank. Like traditional banks, they offer products and services like checking accounts with debit cards (or credit cards if the neobank offers them), savings accounts, loans, mortgages, investment management services and more.

The difference? Are traditional brick-and-mortar banks resistant?

Most neobank have payment license that does not qualify an institution to be designated as a “neobank.” Only institutions holding a credit institution license may call themselves a “bank” or a “neobank”… most banks are backed by the Temenos or Arkea infrastructures.

Today, the number of new neobanks entering the market each year is 5 times greater than it was in 2016. This revolution has largely been concentrated in Europe and Asia.

Players you know and might want be inspired from are in the UK (Starling Bank), France (Qonto), Finland (Holvi), Germany (N26), and Russia (Tinkoff).

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The New Financial Services in Europe

In Europe, neobanks are leveraging the European Payment Services Directive PSD1, which allows new institutions to enter the financial services market with less stringent approvals. It is therfore easier to get a licence in France thanks to the National Competent Authorities—NCAs—such as the ACPR (France), in the United Kingdom with FCA, or in Germany with the BaFin. 

Which license do you need to become a neobank versus traditional banks?

The credit or banking license is not savings accounts

A credit or banking license allows a financial institution to accept customer deposits and issue credit using customer funds. Yes, we are very closed to a traditional bank. Banks accounts are opened now with virtual banks portal and such companies offer FOREX transactions, robo advisor, simple advice, and assistance in asset management, and services related to securities such as socially responsible investment.

The subscription to services is made through a digital banking platform and this is a real competitor strategy facing existing banks.

Banking licenses are delivered by a competent authority. Applying for this type of license could be quite difficult for the new digital bank. For example in Switzerland, building this type of new digital bank it’s a real challenge, higher than Cervin climbing and we strongly suggest you contact us before you start this process. Usually to build this type of bank you will need a greater capital requirement and very strong and well-known staff in Berne.

Building this type of traditional bank could take from 12 to 24 months at least depending on the jurisdiction you will select. Usually to build this type of bank you will also need a very strong banking services partner for custody and accounting.

Electronic Money Institution License

Another option is to obtain an electronic money license which will support financial payment services including the creation of IBANs and BIN sponsorship – credit card. Here an electronic money license allows the license to provide the same banking experience to customers for everyday payments. However electronic money license has some real limitations. So if you want to create conventional banks this is a dead-end.

An electronic money institution license is quite cost-effective and a very nice option for those looking to provide e-money services. This type of license is not meant to issue a credit or analyze credit risk. This type of license is not working for deposit insurance or traditional custody of clients’ funds. If you wish to custody funds then you should go with a partnership…

Neobanks help traditional banks… traditional banks help neobanks. Thank license can be obtained usually in less than 12 months and the legal fees also or less important. You should count around €150,000 for a traditional regulatory license application. The average cost of setting this type of virtual bank would cost you from one to €2 million.

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The Payment Institution License  

Another option is to go for a payment institution license or PI this supports payment services and everything transactions to be carried out by card or direct debit on the direct system. Dissolution also provides cash with drawls and forest transactions. Thanks to DSP2 PSD2 pasty to dissolution is actually quite efficient in Europe. However, dissolution also has some limitations

PI does not allow long-term credit but you can use a specific loan repairable bridge with other financial institutions. In a way, this is a shortcut if you wish to have a full banking license. You have to carefully look into a partner bank’s program and see how your personal loans service can be hosted under their umbrella.

In contrast to EMI, PI can not take custody! You must work with a credit institution where the funds will be guaranteed up to €100,000 per client by the Deposit Guarantee and Resolution Fund in France – the FGDR – Fonds de Garantie des Dépôts et de Résolution.

You will go for a PI if you wish to become one day an established bank. The application process takes less than 12 months. Legal fees for this type of structure range from €50K to €150K. The price depends on the financial products, and bank account activities you wish to provide. On average your challenger bank will have to be strong of €450,000 to €1.5 million to fund the whole operation.

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The Payment service provider agent model

If you’re an Asian model you need to have your own type of light license and your help. Must startups and organizations appreciate going under the umbrella of another company? Start-ups operate under third-party until they achieved sufficient size to join challenge banks’ flock. They will have to follow a virtual banking policy as well as a partner virtual banking license policy. Those new banks operate in a white label debit card.

The umbrella bank is now a service provider and deposit accounts, currency changes, current accounts, budget management, online banking is licensed usually two days umbrella company. This umbrella company will make money with bips of the assets. under management or transaction flow. Very nice way to test the market before you actually start your own bank. Obviously, the main advantage is that you can start quickly. The biggest disadvantage is that you are dependent on a third-party system and control… so if you need to manage complex KYC and remediation. You should test carefully that the umbrella financial service providers will follow with your growth. Monthly maintenance fees can be a hurdle for this model.

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Payment Neo neo licenses

Throughout the world now it is possible to benefit from more flexible regulation. You can build your own bank without the complex banking license through the start of pseudo banking licenses. This new type of license is opening the gates to new digital bank opportunities.

New version of Instaprint bank offers in reality financial services such as payments into lenient regulation. Payment licenses are often associated with regulatory send boxes which provide testing grounds for new digital banks.

How does InvestGlass help you with building your own banking services?

InvestGlass is a next-generation core CRM system that connects you to any fintech proving an API. We connect the CRM core to typical neobanks services and help companies partner with the best fintech. We build robo advisor to create any type of onboarding for financial health, insurance, mortgage, MIFID, FinSa onboarding, and more.

InvestGlass is a cloud-native platform but we can also set up InvestGlass on your on-premise. We love creating new business models :

  • upgrading traditional banks
  • connecting banking services
  • money management app
  • connect to money transfers
  • create insurance companies
  • modernize physical bank branches
  • set peer-to-peer payments system
  • building a full-fledged banking services platform
  • connecting to physical branches with new digital experiences
  • lifting automation, in providing customer relationship services automation
  • create mobile app