Neobanking is considered one of the most prominent FinTech trends in recent times. In January 2022, there were about 4 hundred neo-banks in the world with a customer base of almost 1 billion customers. At the same time, the number of such companies is steadily growing due to the wide demand for mobile digital services.

 

If you are interested in registering a company for neobanking, you should be prepared to face various challenges. We are talking about the need to develop truly valuable solutions for users, a well thought-out business model, and the formation of a highly qualified team. In addition to complying with the basic technical features, the task of the owner of the future neobank is also to comply with all the legal requirements that the legislation of a particular jurisdiction will impose on it.

 

It is important to choose the appropriate country and legal form, to be able to properly register the company, obtain the necessary license, register with the tax authorities – all these and many other legal tasks will help to effectively solve the Lawrange Attorney Association. Our specialists are familiar with the nuances and peculiarities of registration of various types of business in the FinTech sphere, and neobanking is not an exception. With us you will be able to save time and minimize any worries.

 

The concept of neobanking

Neobanking is a fintech company that provides digital banking services. It operates on the basis of a mobile application and an internet site. Unlike traditional banks, neobanks do not have physical offices and branches. By operating through apps, such financial institutions prove to be more cost-effective. For a neobank, which exists only online and has no physical offices, the app or website plays a major role in customer service. This reduces the cost of renting an office and the salaries of numerous office staff. This, in turn, allows neobanks to provide cheaper financial services and their customers to make transactions with low fees.

 

In general, such fintech companies do not aim to completely replace the existing banking system. They are a great alternative for people who are in search of fast, affordable and flexible solutions in the form of personal/business accounts with low service charges or transactions with low fees.

 

Neobanks offer not only traditional banking services but also budget planning tools. At the same time, lending among such business structures is not very common due to high operational costs and financial risks.

 

Benefits of neobanking for users:

 

  • The ability to quickly utilize a specific financial service.
  • Clarity and transparency of the processes performed.
  • Availability of using financial instruments.
  • Possibility to use neo-banking services round the clock.
  • Promptness of money transfers, including international ones.
  • Access to third-party services that can be easily integrated into the non-banking system.
  • Access to all necessary solutions in one application.

 

Although the term “neobank” contains the word “bank”, technically many of these companies are not banks as such. Some of them don’t even have the banking licenses required for this type of business. However, they are not fraudulent, but are merely, for example, not regulated by the central authorities of a particular jurisdiction (which is why it is so important to choose the right country to open a neobank) or act as a subsidiary (basic regulatory requirements are usually taken care of by the parent company).

 

Depending on the type of activity, such an enterprise may:

 

  • Operate under a financial license and provide banking services independently in accordance with the laws and requirements of the local Regulator.
  • Be a partner of a conventional bank to provide financial services in a remote format.

 

One of the main features of neobanking is the use of innovative financial technologies, such as:

 

  • innovative payment processing;
  • user-friendly mobile applications;
  • flexible solutions (including KYC, AML and transaction monitoring);
  • real-time balance and transaction status updates, etc.

 

As a result, financial services become faster, safer and more accessible to the public. A user can handle all tasks in a couple of clicks, facilitated by simplified verification procedures and intuitive, easy-to-use interfaces of personal accounts in neobank. The main focus is on modern technologies for processing large volumes of data and providing access to non-banking solutions for a wide audience.

 

Business benefits of neobanks

The global neo-banking market size was valued at USD 66.82 billion in 2022. It is projected to grow at a compound annual growth rate of 54.8% from 2023 to 2030. The following factors will drive the further development of this market:

 

  • Customers’ desire to maximize the convenience of receiving services.
  • Active use of smartphones and internet in the banking sector.
  • Increasing partnership between banks and organizations to launch non-banking platforms.
  • Growing demand from retail customers, small and medium businesses.

 

The market is constantly evolving and its players are growing along with it. The decision to incorporate a company for neobanking will definitely prove beneficial in the long run. It is a more convenient alternative to traditional banking services. Your startup stands a good chance of attracting the attention of a wide audience, and gaining access to a number of benefits:

 

  • Savings – costs are reduced by not having to open an office and protection from various financial risks. The main sources of income for neobanks are transaction fees, premium subscriptions, integration of third-party services, exchange fees, account maintenance and paid services.
  • Personalized approach – the company provides its services remotely and constantly interacts with users. There is an opportunity to serve more customers and offer exactly what they need, which in combination contributes to increased revenues.
  • Analytical capabilities – digital platforms allow you to collect and analyze customer data and understand how they behave in the banking ecosystem. This monitoring makes it much easier for a company to customize services and functionality to meet user needs.
  • Innovation – the rapid development of digital technologies is being used by neobanks to their advantage, which opens up many opportunities for them to improve services and optimize internal processes.
  • Scaling – the neobank’s app and website can be effectively promoted online, adapting to market trends. The company becomes more quickly recognizable both locally and globally.

 

Legal requirements for neobanking

The financial sector is generally highly regulated. Various restrictions may apply with respect to scope of business, capital, interest rate limits and other aspects. State Regulators also often impose specific reporting requirements. At the same time, the presence of monitoring and control by the state allows to maintain the stability of the economy and protect the interests of clients.

 

Regulators are also involved in licensing of non-banks. Their requirements depend on the type of financial service and local legislation. The choice of license should be made according to your business model and the specifics of your activities.

 

For example, you can obtain a banking license to call yourself a bank. This will allow your firm to engage in deposit taking, lending and a wide range of services.

 

Usually such authorization documents are issued by central banks. It all depends on where the firm is registered and its target markets. In the EU, for example, the ECB acts as the national regulator, in the U.S. – the state service of the Federal Reserve, in Saudi Arabia – SAMA, etc.

 

Obtaining a banking license is usually characterized by complexity and financial cost, especially for young, small projects. The application process can take more than 1 year (depending on the country). At the same time, compliance obligations, including capital requirements, are high. However, opening a neo-banking company with a bank license creates great prospects for the effective development of your business as a whole.

 

Neobanks can also obtain other types of modern permits, which are, in a way, lighter versions of banking licenses. This is, for example, EMI – it allows companies to provide services similar to those of banks, but the threshold for entering the market is lower. Obtaining an EMI license is considered a fairly cost-effective option for a young neobank, not least because the licensing process is less time-consuming (6-12 months).

 

Varieties of neobanks

Depending on various criteria, there is a wide variety of bank business models. For example, if we start from the target market, then most of these companies are divided into the following types:

 

  • Applicant banks – specialize in providing a full range of standard banking services. At the same time, their activities are more focused on serving customers interested in a low-cost and innovative alternative to traditional banks.
  • Niche neobanks – focus on a specific product or service, such as lending or investment services.
  • Embedded finance neobanks – prefer to partner with non-financial institutions to provide specific services.

 

Neobanks can also be categorized according to the degree of financial independence:

 

  • Autonomous – incorporation of a company for neo-banking is done using its own capital, without being tied to any bank. The firm independently secures the deposits of its investors and obtains its own banking license.
  • External-oriented – dependent institutions functioning with the support of a traditional bank, which, in fact, initiated the creation of a subsidiary in order to expand the range of services provided and attract a wider clientele.

 

Best jurisdictions for neobanking registration

Registration of a business (firm) for neobanking is one of the important steps, which should be preceded by an equally important stage. It is about the correct choice of jurisdiction for the future financial company. It is necessary to base on the peculiarities of taxation, registration, the need for licensing and other aspects. It will be much easier to make the right choice if you enlist the support of specialists of Lawrange.

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Singapore

Singaporean neobanks maximize the use of innovative technologies in their work. Here it will be possible to provide a variety of financial products, ranging from overseas transfers, lending, etc. In Singapore, there is close cooperation between digital banks and traditional financial institutions.

 

Despite the hype around neobanks, they are still not so common in Singapore, as the jurisdiction is known for its rather strict financial regulation. Thus, many fintech startups looking to incorporate or get licensed may face some obstacles. In order to successfully register a company in Singapore, we recommend using the assistance of our law firm’s specialists.

 

USA

This country is among the top 10 in terms of ease of doing business. It has an attractive tax system, and the government encourages entrepreneurs in every possible way when starting a business. Non-resident entrepreneurs can enjoy the same rights and benefits as residents.

 

Our Attorney Association can help you to register a company in the USA for non-banking purposes. We are familiar with local laws and requirements for opening a legal entity. Our experienced specialists will provide a range of necessary services to support a fintech project of any complexity in the United States.

 

Estonia

Estonia is another country that is considered a favorable place for any business, including neo-banking. It offers entrepreneurs an optimal taxation system, the opportunity to use electronic document flow, managed by the state and quick registration of a legal entity. Registering a company in Estonia for neobanking will succeed within a few days, but provided that you meet the exact requirements of the local legislation. In order not to encounter some pitfalls during the registration process, we recommend using the legal services of Lawrange professionals.

 

Stages of company registration for neobanking

The process may vary depending on the specifics of a particular jurisdiction, but there are a few standard steps common to most countries.

 

Development of a business plan and business model

This important document is based on the estimated costs. It is also necessary to outline the functions and possible risks on the way to becoming a business. Another important role in the business plan is the development of a solid business model. For this purpose, it is necessary to research the market, analyze the target audience, and make a plan of action to attract potential customers.

 

Preparing documents and applying for registration

To start a company in most jurisdictions, you need to prepare:

 

  • Copies of passports of the founders.
  • Copies of documents confirming the residence address of the business owner.
  • Articles of Association and other corporate documentation.
  • Questionnaire data on each founder, shareholder.
  • Document confirming payment of the authorized capital (the amount depends on the legal form and jurisdiction), etc.

 

The full package of documentation is submitted to the Regulator together with the application for registration of the company. Consideration of the application may take from 1-2 weeks to 1 month.

 

Obtaining the necessary licenses and permits

Successful registration of a company under neobank also implies passing licensing. What type of license you will need, will be able to suggest the specialists of our company, but only after you decide on the jurisdiction. Based on this, as well as on the type of neobank, we will help you obtain:

 

  • banking license – opens significant competitive advantages for a young fintech project, but implies the need to comply with strict requirements, including capital;
  • fintech license – we are talking about the popular EMI, PI license and their analogues in the world. Such permits can be called a lighter version of a banking license, so many entrepreneurs often give preference to them when opening neobanks.

 

If you decide to cooperate with a traditional bank, you will not need a license. But this model is characterized by the least flexibility compared to the others.

 

How much does it cost to register a neobanking company

Neobanking registration implies the need to apply for company registration, as well as obtaining a license. These processes are always accompanied by the payment of various state fees, the amount of which depends on the chosen jurisdiction. Legal assistance, which is required for professional support of the registration process, is an additional expense. In general, the cost of business registration depends on the size, scale and scope of services that the company plans to provide. To get more precise information about the financial aspect of the registration of neobank can be obtained by contacting our Attorney Association.

 

Why it is worth to apply to Lawrange

The process of opening such a business as neobanking implies the need to perform many tasks, including legal. Obtaining the necessary licenses and regulatory approvals, complying with capital requirements, privacy policy, AML/KYC requirements, collecting the necessary documentation – this and much more can be a serious obstacle to the establishment of your business in the field of neobanking. However, with the support of experienced specialists of Lawrange, the process of company registration and licensing will be as easy and quick as possible, taking into account all the nuances and peculiarities of the legislation of the jurisdiction in which you decide to open a business.

 

Conclusions

Neobanking is rapidly gaining popularity due to a number of advantages that it provides both users and entrepreneurs. Fast, convenient banking, a large selection of innovative banking solutions helps to expand the customer base, while cost efficiency, extensive analytical capabilities allow for quick customization of services for users. For these and other reasons, a startup in the neo-banking sector has a great chance of achieving success quickly. The main thing is to take into account not only technical, but also legal nuances. For this purpose, we recommend you to take the help of Lawrange lawyers, who will advise you on the choice of a suitable jurisdiction, help you to collect the necessary package of documents, etc.

 

FAQ

How long does it take to register a neobank?

The registration process consists of several stages, each of which requires a certain amount of time. For example, preparation of documents may take up to 3 months on average. Company registration usually takes no longer than 1 month in most jurisdictions, obtaining a license is a longer stage. Licensing usually takes about 6 months or more. The exact time frame varies from country to country.

 

How do neobanks make a profit?

Making a profit is often based on charging interest on transactions, providing loans (credit cards). Also, some neobanks make money through ecosystem integration when partnering with traditional banks.

How do neobanks ensure cybersecurity?

Regulators in various jurisdictions impose a standard requirement on neobanks to ensure the protection of their users’ data and assets. To do so, the company must develop and implement technologies for intelligent customer identification and encrypted transactions.

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