How to build a neobank from scratch
Originally published October 18, 2021
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#1 The Sponsor Bank
They let you rent their charter, they interact directly with FDIC & hold member deposits. More coverage in this prior 🧵
Common partners: @thebancorp, Sutton, WebBank Common deal unit econ: bps of pur. volume, fees per txn
#2 The Issuing Processor
They act as (A) system of record (B) gateway to payment networks (C) processor of txns for your bank (e.g. auth / settle / card issuance).
Common partners: @GalileoFintech, @i2cinc, @Marqeta, @stripe
Common deal unit econ: fees per txn, API calls
#3 The Front Of Card Payment Network
They are front of card & facilitate Sig & PIN payments + ATM WDs. The set interchange (IRF) & give incentives to drive volume.
Common partners: @Mastercard, @Visa
Common deal unit econ: fees per txn, per txn + bps pur. volume incentive, IRF
#4 The Core Banking System
They are the banking platform used by FIs to track balances, enable products, manage accts and maintain ledger.
Common partners: @Fiserv, @FISGlobal, @thoughtmachine, @Q2_Software
Common deal unit econ: fees per acct, fees per txn, API calls
#5 The Fee-Free ATM Network(s)
They power your free ATM network presence at retail locations or at other FIs.
Common partners: @Allpoint (55K at major retailers), MoneyPass / @Fiserv (32K at FIs, retailers, c-stores, 7/11) Common deal unit econ: fee per ATM WD, monthly fees
#6 The Cash Deposit Network
They provide members with a way to deposit cash into their accts, primarily via POS at retail locations.
Common partners: @GreenDotBank, @InCommPayments
Common deal unit econ: fee per cash deposit, rev share on cash deposit fee to members
#7 The Acquiring Processor
They process instant funding (AFT) and instant payouts (OCT) on payment rails for members by enabling you to act as merchant (vs issuer) on a network.
Common partners: @finix, @stripe, @tabapayments
Common deal unit econ: fees per txn, interchange fee
#8 The Secondary PIN Network
They are Durbin req'd 2nd PIN networks that facilitate PIN payments. They use fees & incentives to drive volume.
Common partners: @Fiserv (STAR) @Mastercard, PULSE, @Visa
Common deal unit econ: fees per txn, interchange rev, per txn incentives
#9 The Bank Data Connection
They connect member bank accts & txns to your service. They also connect your bank to other FIs and fintechs to facilitate acct funding.
Common partners: @finicity, @MX, @Plaid, @Yodlee
Common deal unit econ: API calls, fee per connected acct
#10 The Know Your Customer (KYC) Provider
They do KYC to verify & validate applications for your service and handle ongoing AML compliance.
Common partners: @usealloy, @personaIDV, @socureme
Common deal unit econ: API calls, fee per acct
#11 The Automated Direct Deposit (DD) Provider
They make switching your member's DD provider easy and instant so you can onboard engaged, high spend members.
Common partners: AtomicFI, @PinwheelAPI, @Q2_Software (Clickswitch)
Common deal unit econ: API calls per DD switch
#12 The Member Support Provider
They provide outsourced member services and dispute / fraud investigation agents that scale on/off-shore w/ your growth.
Common partners: @SutherlandCorp, @TaskUs, @Teleperformance
Common deal unit econ: fees per ticket / claim and/or fees per hr
#13 The CRM and Interactive Voice Response (IVR)
They provide the phone and chat support platform for your agents, incl. self-service solutions like IVR + chatbots.
Common partners: @Talkdesk, @Twilio Flex, @Zendesk
Common deal unit econ: API calls, fee per seat
There you have it!
While those are the top 13, there are 100s of other important players that make fintech banking possible.
Hitlist:
-Hosting: They host your app (@awscloud, @googlecloud) -Mobile Check Deposit: They enable check deposit w/o BaaS: (@miteksystems, @Urban_FT)