Updated: Dec 7, 2021
Convenience matters a lot in the financial sector. That's why neo banks' services have already become irreplaceable. Recently, JEVERA described some peculiarities and benefits of fully online banks, trying to form general insights. But today, we're focusing on the technical side of this issue. Let's try to discover which systems are behind a neo bank app.
Software For Online Banks: Hierarchy
Some Oceania countries and the UK issue banking licenses to neo banks. Lucky owners of those are 86400, Xinja, Tandem, etc.
But most digital banks are not banks from the legal point of view. They operate like fintech companies, providing clients with the ability to manage financial resources effectively. Therefore, such companies rarely function independently. They cooperate with registered banks.
Here the fintech companies and traditional banks symbiosis is much more fascinating for us, so let's consider it.
Here, the neo bank software can be conditionally divided into 3 levels:
core banking system
fintech company's components
A core banking system is a set of products that support backend activities. CBS helps to provide deposits, loans, and other banking services. The system also includes the document flow feature and reporting instruments. Flexcube by Oracle or Finance Core Banking Solution by EdgeVerve Systems are bright examples of new CBS. Anyway, a majority of banks use quite old, monolithic-based products.
All the innovation that determines the online banks' superiority over traditional ones lies in microservices-based middleware. This layer of software allows CBS and fintech company's components to integrate seamlessly. It also processes data in real-time, minimizing service errors and improving customer experience.
The highest layer of software determines a fintech company as a unique one. It is the set of products that an enterprise initially uses to operate and position itself in the market. A prime example would be a mobile app.
Banking as a Service (BaaS) vs. Custom Middleware
In this chain, the middle link is perhaps the most principal. That's why Banking as a Service products became so popular now. BaaS companies help traditional banks to create sofa banking and share CBS with fintech area representatives. They provide ready-made, high scalable middleware for real-time interaction between core components. BaaS also includes online banking information system software, marketing, analytics, and payments features.
The BaaS platform usage is similar to any SaaS solution. All the data is hosted on remote servers, and a user shouldn't worry about special equipment installation or product maintenance. That is why most online banks use these products actively. For traditional banks, it's also a great way to turn potential competitors into partners.
Nevertheless, BaaS product usage is still equal to a risk of sensitive information disclosure. Moreover, ready-made products always resolve only standard issues of a certain market segment. If the neo bank concept is about creating something completely new, BaaS is hardly the right solution to support ambitions.
Choosing BaaS, management should consider the banking regulations in a particular country. The solution should provide 100% compliance with them.
And so, the business has at least three following reasons to choose custom middleware development for a digital bank:
clients' data protection;
desire to offer a unique product;
guarantee of compliance with the laws and partner-bank policies.
Meanwhile, custom solutions always meet client's requirements. Neo bank can bypass the system and agree on CBS usage directly with a traditional bank. It also should have a full range of custom middleware designed by a vendor. In this case, all the information will be hosted on the private vendor/neo bank servers. It can provide a high level of data protection. This type of software is also easy to adapt to the market conditions.
Custom Online Bank Software Neo Banks Should Think About
The online banking power lies in a customer focus. Middleware should be highly scalable and omnichannel. In this case, a well-coordinated work of all components has to make the client happy. It's especially true for users' features, like a loyalty system, a service catalog, or a contact center.
The first thing that comes to mind when talking about neo banking (apart from convenience, sure) is the loyalty system. Here it focuses on cashback, actively used by many digital banks. But if a fintech company wants to go beyond the competition, it should make a cashback system, and the overall approach is more custom. It's enough to form client profiles and analyze them permanently, learning the customer's preferences. Thus, for instance, a neo bank can determine client's favorite stores to offer him bonuses for purchases from the last ones. Moving this direction, an enterprise can receive a first-class loyalty system that will always offer useful cashback.
One more important product for an audience is the service catalog. A neo bank must be open to its users and provide them with relevant data. The real-time updating feature can allow it. A convenient interface is also a core here. Customers need to get a well-designed list of services to make a choice easier. But that's not all. A well-designed catalog can organize open business information, adjust pricing in real-time, and make a user's choice easier.
And last but not least, is a contact center. It is a tool that allows a company to interact with customers through social networks, telephone communications, email, websites around the clock. It can process hundreds of thousands of requests per day, providing convenience to clients and employees. The contact center should have a one-stop-shop interface to make request processing error-free and faster. The system integrated with the rest provides a quick company response following specific scenarios. Using such software, a neo bank can ensure 24/7 multichannel support, promptly resolving issues of any complexity.
Of course, neo banking middleware isn't limited to the above three products. But they impact the audience a lot.
As for the eternal question: the vendor or custom solutions - you should proceed from your concept. If a fintech company needs a standard high-quality middleware, better to choose RadarPayments, Optherium, CurrencyCloud, or other proven BaaS products. On the other side, a unique idea requires unique implementation. And custom development definitely can support this way. Such products match companies that strive to keep individuality, flexibility, and safety.