Blog > How to start a bank

How to start a bank

Apr 16, 2019, by Dmytro Pimakhov

Meet the Challengers

When I was attending Lendit Fintech conference this week, the news came out that new UK “challenger bank”: Marcus by Goldman Sachs has reached 100 000 clients in less than one month since its launch. This is an unprecedented feat since the service only provides a single product and doesn’t even have a mobile app, something that is a must in our modern digital banking age.

Here are some more numbers:

Revolut — 2 million clients in 5 years
Monzo — 1 million in 2 years
Monobank from Ukraine — 500К in one year

There are many other challengers, which we all heard of: N26, Starling, Atom, …

What are the common reasons for their successes? Clear, engaging and easy to navigate user interface and experience — yes. Simple and straightforward product line — certainly. Terms that are better than many of the traditional banks — quite so. There are others, like agility and freedom from legacy systems, but in my opinion, the most important reason that unites all of these is that the “challengers” are determined to provide better banking service than the market had previously received.

“Banks don’t like to do banking anymore,” one of my clients told me, and it is quite true. For one — it is difficult to become a client of one and even more challenging to use its products. Think of all the difficulty and humiliation you need to go through when applying for anything in a traditional bank: the paperwork, the proof that you are a good and reliable individual. You can bring your cat or your favourite chair with you when relocating to a new country, but you cannot bring your credit score. And what do you get in return? Complicated products designed to “catch” you on every turn and ROI which is not worth your attention and definitely not the years of your commitment to the bank. Banks would generally prefer you to be a middle-aged millionaire, who would just deposit the funds with them, rather than a student graduate only starting a new job and struggling to navigate in this complex financial world. This is where the “challengers” come in and win their battles over the minds of both the millennials and more mature clients by providing a better service and overall experience. Moreover, the space for “fintech disruption” is so large, there are more and more parties coming in, or thinking of introducing “banking” products and services to contribute to their existing offering range: think “lenders”, “insurance providers”, “wealth managers”, “payment providers”, “FX traders”, etc. What they effectively need to do is expand their existing set of services, and the question they should be asking is “how do we build (something that looks like) a bank?”

When financial service becomes a commodity

Of course, there are multitudes of things to consider when undertaking such a complicated challenge, and, should you really want (or need) to take it, you might want to start with reading up on “New Bank Startup”, a useful guide issued by the Bank of England. However, the traditional route of building a new bank is costly, lengthy and, despite all the support available, exhausting and draining. From a technical perspective, you would have to invest heavily in infrastructure (new hardware, software, network), licensing and many other things. In many cases, this is not really required, and, if you look carefully, many of the famous “challengers” are not, technically speaking, banks. Consider this: if you are an established financial service provider (lender, payments facilitator, etc), who simply wants to start issuing cards to clients or enable check cashing, it would be a showstopper for you to start investing in all that processes and infrastructure. Luckily, there is way out: you can “outsource” most of the financial operations from an existing and ever-expanding range of SAAS financial service providers.

Financial products and services are becoming more and more “commoditised” each day. You can “go shopping” in this virtual supermarket and select a card management service provider, KYC/AML/On-boarding provider, Loan Management service provider, scoring, CRM, payments, FX, Securities, Investments; you name it. The tricky part is to select the right ones, interconnect (integrate) them effectively and to present the end product to your clients in a clear and engaging manner.

Picking the right ones

It is our core business at Metryus to do these sort of integrations and financial app development, and, after working across the globe with a substantial range of service providers in most segments of finance, I wanted to share a bit of advice on when it comes to choosing the right one for your new fintech initiative.

There are tons of books and articles on software selection approach, so let’s not repeat the obvious on features and functionality, TCO, experience, team availability, SAAS, and so forth. Here are some of the less obvious considerations which you might take into account when selecting your provider:

1. Ensure that your KYC/AML/Onboarding processes satisfy all of the service providers you are planning to connect with. It often happens that individually they support all the necessary checks and are compliant to whatever regulation you are starting your business in. However, we have often seen cases where the approach to KYC might be different depending on the provider, which complicates or duplicates the on-boarding process. For example, for a regular card, an account/payment provider requires a single set of customer data whilst a credit scoring provider needs an entirely different data set. It is best to check this before you start any project to avoid unnecessary complications.

2. Don’t be afraid to ask about a dedicated demo environment and documentation for all of the providers’ APIs. If you assume that a company perceived as “serious” or “well known” has them, you may be surprised to learn that many of them don’t. This incredibly slows down the integration process and testing, resulting in anxiety and delays at all ends.

3. Expanding your business by adding a new product or service often needs a careful redesign of the existing user experience, so do not skip the UX/UI design stage and make sure that your SAAS components “fit together” well. There is a possibility that your chosen service provider only delivers data in a fixed format which is difficult to work with when designing a new user experience. In the world where customer expectations are so high, you can’t risk it to propose a good enough UX/UI which “does the job”, it has to be flawless. Also, don’t leave it all to the IT guys — they are generally bad in UI, so there must be a dedicated design team helping your new fintech.

Some LEGO bricks are easier to build with

Here are some highlights of providers that I have come across at LendIT and you might want to consider when choosing your “LEGO blocks” for a next banking service:

1. Tink (https://tink.com/) is a SAAS provider of customer accounts data insights, including categorisation, PFM. They can also act as a payment initiation provider. You can use their services to allow a customer to interact with their accounts from multiple banking institutions within your app, making it very convenient and easier to adopt.

2. As demonstrated by the success of the Marcus saving account at the beginning of this article, there is a very high demand for savings and investments services if they are done right and appeal to your target clientele. Here are some of the providers who can allow the investment feature in your app:

a. Drivewealth (https://drivewealth.com/) will allow your customers to start their wealth management journey by enabling investments in various stocks and securities.

b. Smartlands (https://smartlands.io/) if you are aiming for a more dynamic and tech-savvy clients, you might offer them an option of investing into tokenised property through STOs processed by Smartlands.

3. If you are a startup or fintech aiming to launch your platform fast and with minimum considerations for legacy data, you might want to consider Coriunder (https://coriunder.com/ ) as a platform on which to build your offering. They are a BAAS (Back-End As A Service) provider, providing you with immediate access to the backbone for your apps.

I hope this was useful. If you have any comments or you wish to learn more about how Metryus and how we can help your Fintech enterprise, or you just simply want to catch up with me over a pint, reach out to Pimakhov@metryus.com or DM at @Superpima007