How to build a Neobank

Here is the e-mail that spawned this…

“Hey Ben – Included is ______ who is starting starting a neobank to service _____ market. She’s really close to the market but figuring out what providers to put together to make this work. Can you help offer some guidance?”

I’m going to post my answer here because this e-mail is getting quite common. New neobanks don’t have to solve a lot of technical challenges anymore and they get to focus a lot more on their UI/marketing/Etc.

Here is how I’d do it…

You need 1) a place for your clients to store their money 2) a way for them to store money where you as the neobank don’t come into ownership of it 3) a way for your customers to spend the money 4) a way for money to get into the accounts 5) the freedom to build your UI 6) a open platform you can bolt more services onto. 7) A way to validate identities 8) A way to track all the transactions in a ledger.

Here’s how you could solve each with 2 providers.

1 – Use Dwolla for this. Spin up VCR accounts for your clients that are opened through your app. This gives them the ability to hold money in the app while also solving for…

2 – You as the neobank (I’m going to stop saying bank now because you’re not building a bank here. Don’t market yourself as a bank. You can thank me later for that one) don’t want to hold the money. You probably want a partner’s technology to hold it in the name of your client where your client actually owns their own money just like they would through a normal banking service, in a regulated entity. Using Dwolla VCR solves this problem for you.

3 – Depending if you want to enable P2P or account to account transfers you can just enable VCR <> VCR transfers. Those also don’t cost you anything going account to account and are real-time. BAM! You’ve got a P2P / A2A closed loop ecosystem instantly. In terms of spending, most platforms issue a Visa or Mastercard that actually settles from the balance of a VCR. I’d suggest using Apto for this. Great team, great product, fast issuance, and even lets you spawn digital or virtual cards for your customers.

4 – For each VCR, you add a FundingSource. These can be used to load your customers accounts directly from their bank account on whatever frequency is good for your clients.

4.1 – If you really want to level up… Use a VCR and spin up a VAN. Basically, you have a routing number and account number now that supports direct deposit so you can give these numbers to your customers. This is a key component for a number of companies to build something that offers what is traditionally a neobank like service.

5 – All fine. Dwolla lets you build the UI and it’s reviewed through the app review process. They will go as fast as you want while making sure the proper reviews get done.

6 – Also fine. I don’t think I’ve seen anyone come up a traditional service they couldn’t bolt on to the Dwolla platform. What other services do you want to offer your future clients? Worst case we can jump in front of a white board. I’ll bring some friends if we need to call in the cavalry.

7 – Also fine. When you spin up VCR the account opening process does this for you under the hood. You don’t even need to go get a second identity verification provider unless you’re dead set on doing so. If you do that, that’s also ok and you just need approval from the team for your designated provider. The good ones are already on the 👍 list.

8 – Also taken care of. Dwolla’s ledger tracks all the states and transaction history indefinitely and it’s just built into the product so you don’t even have to roll a custom ledger.

2 technology providers and a little bit of code and you should have what you’re looking to do up and running. Let me know if you want a intro to the teams.

I think it was pretty helpful for that particular founder and hopefully it will be for a few more folks.