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How to create a digital bank: the roadmap for businesses looking to embark on this journey

Published on Jul 05 2022. 15 minutes reading

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Latin American countries are experiencing a major revolution in their financial systems. In addition to the fintech boom, players from various sectors are entering this space and seizing the many opportunities it offers. Since there is still significant room for new entrants, understanding how to create a digital bank and become part of this movement is essential.

Offering digital financial services has become simpler and more accessible thanks to the Banking as a Service (BaaS). model. This API-based solution allows any company or institution to launch its own "bank"—with its own brand and business model—quickly and with minimal complexity.

Moreover, the ability to provide a full digital banking experience without becoming a traditional financial institution is closely tied to the rise of Embedded Finance . This phenomenon is driving a major transformation in the distribution of financial services not only in Latin America but worldwide.

However, rather than focusing solely on the theory behind this transformation, the goal of this article is to take a more practical approach to explaining how to create a digital bank and its advantages.

What is a digital bank?

A digital bank is essentially a fully online financial institution focused on modern banking services. Due to their nature, these banks typically do not have physical branches. Instead, they rely on a robust technological infrastructure to provide financial products and services, offering customer support entirely online—whether through mobile apps or internet banking—making banking more accessible.

The term “neobank” is often used as a synonym for digital banks, which makes sense, as both leverage technology and innovation to understand market demands and offer essential financial services with minimal bureaucracy and lower costs.

However, it is important to note that, in some cases, digital banks. may be affiliated with traditional banks or banking groups, whereas neobanks are independent fintechs. This means that while all neobanks are digital banks, not all digital banks are neobanks. That said, since this article focuses on creating a digital bank from scratch, the two concepts align in this context.

What is the current landscape of digital banks in the market?

In addition to the exponential growth in the number of digital banks in recent years, businesses operating under this model have become increasingly large and robust. As a result, we have seen neobanks rise among the largest banks in terms of customer base in various countries.

In Latin America, this evolution is particularly evident, with digital banking penetration playing a key role in expanding financial inclusion across different nations in the region.

In Brazil, the study Panorama do Sistema Bancário Brasileiro, recently conducted by Oliver Wyman, revealed that the average number of bank accounts per individual taxpayer ID (CPF) or business ID (CNPJ) has grown significantly in recent years.

In 2015, the average was 2,1 accounts per individual or company, whereas by 2023, this number had reached 5,5 accounts. This diversification has especially benefited digital banks, which now surpass traditional institutions in the number of account holders among Generation Z consumers.

How to create a digital bank from scratch: the model that enables different players to participate

The “as a service” concept is a major trend today, referring to services offered flexibly and easily contracted with speed and convenience. This model has given rise to solutions across various sectors, leading to innovations such as Software as a Service (SaaS), Data as a Service (DaaS), and, of course, Banking as a Service (BaaS).

API platform

In the case of BaaS, it is accessible to clients through Application Programming Interface (API) technologies. With these open API platforms, data can be aggregated and cross-referenced seamlessly.

This allows clients to pay only for the solutions they use while managing the accounts they oversee, offering services such as payments, card purchases, and other financial transactions.

Embedded Finance

As we know, thanks to the technology-as-a-service model, we are witnessing the evolution of Embedded Finance, which enables the distribution of Embedded Finance , which describes this distribution capacity of financial solutions to companies that do not operate in the financial sector.

Thus, it is closely tied to the major transformation of the financial market, which is increasingly blurring the line between traditional financial service providers and new entrants—companies that are not banks but leverage BaaS.

This latter group includes retailers, technology firms, telecom companies, and other sectors that have begun entering the financial system as technological and regulatory barriers become more accessible. Providers of Banking as a Service, such as Dock, are making this opportunity possible.

Explore use cases for creating a digital bank across different sectors

Step by step: how to create a digital bank

Both fintechs operating exclusively in this space and players from other sectors looking to offer financial solutions must go through several stages before entering the market.

For this reason, it is essential to understand the process of creating a digital bank and the necessary steps involved. This article outlines some of the key phases in this journey.

Defining the business model

API-based Banking as a Service (BaaS) platforms allow for extensive customization often referred to as hyper-personalization — enabling businesses to meet a wide range of demands.

Therefore, companies must clearly define how they intend to operate in this market to differentiate themselves or, if applicable, better serve their existing customer base.

When considering how to create a digital bank, it is important to determine which services will be offered to users, as the range of possibilities is vast. For example, businesses can provide a fully digital account, such as Dock’s banking solution, which enables secure and efficient financial transactions and even loans. Additional features may include:

Digital account app;
Instant transfers via Pix;
Bill and slip payments;
Branded debit card;
Virtual card for online purchases;
Voucher and mobile top-up marketplace.

Finding the ideal BaaS provider

Selecting the right Banking as a Service (BaaS) provider—one with a platform that aligns with your business model and offers everything your company needs—is a crucial step in creating a digital bank.

Dock, for example, manages the entire treasury operation, including account opening, transaction processing and monitoring, from authorization to settlement, while ensuring operational quality and security. Its Banking platform includes:

Digital customer onboarding, including KYC, biometric authentication e background check;
Fraud prevention systems for every transaction;
Payment account management (debit and credit ledger);
API gateways with public and comprehensive documentation;
Full regulatory and accounting support;
Financial reconciliation tools.

Understanding regulatory requirements

Beyond the technological aspects, an essential and often challenging part of creating a digital bank is navigating the regulatory framework governing financial services.

It is critical to understand regulatory requirements, assess the compliance obligations set by financial authorities, and ensure that the chosen BaaS provider offers the necessary infrastructure and accountability to meet these standards.

What are the regulatory requirements for creating a digital bank?

Understanding the concepts and regulations set by the Central Bank of the country where the business will operate is essential. In Brazil, for example, the Central Bank of Brazil (BCB) defines a “payment institution” as a legal entity that facilitates purchase, sale, and fund transfer services within a payment arrangement, without the ability to grant loans or financing to its clients.

Regarding the Brazilian market, the BC classifies “fintechs” as companies that introduce innovations in financial markets through the intensive use of technology, with the potential to create new business models. These organizations operate through online platforms and provide innovative digital financial services.

The BC recognizes various fintech categories, including credit, payments, financial management, loans, investments, financing, insurance, debt negotiation, foreign exchange, and multi-service fintechs.

In Brazil, two types of credit fintechs can be authorized to operate. One facilitates intermediation between lenders and borrowers through electronic transactions—this is known as a Sociedade de Crédito Direto (SCD), or Direct Credit Society, in English. The other, the Sociedade de Empréstimo entre Pessoas (SEP), or Peer-to-Peer Lending Society, enables direct lending between individuals, with all operations recorded in the Credit Information System (SCR).

In this context, those looking to operate in the Brazilian market must be familiar with the following regulations:

BCB Resolution No. 80/2021: addresses authorization processes related to the operation, establishment, and functioning of payment institutions.
BCB Resolution No. 81/2021: regulates authorization processes for payment institutions and the provision of payment services by other institutions authorized by the Central Bank.
Circular 3.680/2013: establishes the types of payment accounts used by payment institutions and financial institutions to record end-user payment transactions.
Law No. 12.865 / 2013: governs payment arrangements and payment institutions within the Brazilian Payment System (SPB).
Resolution CMN nº 5.050/2022 : regulates the organization and operation of Sociedade de Crédito Direto (SCD).
Resolution CMN nº 4.970/2021 : defines the authorization process for the operation of Sociedade de Crédito Direto (SCD).

Key legal aspects for creating a digital bank

To establish a digital bank, it is essential to comply with all legal requirements to ensure the business aligns with the regulations set by the Central Bank of each country. Another critical aspect is the development of a compliance program that guarantees adherence to these regulatory standards.

Data protection is also a highly relevant issue that requires special attention. Failure to comply with data protection laws may result in significant penalties for the company.

What are the costs of creating a digital bank?

Launching a digital bank involves various costs, including the capital and net worth requirements set by the Central Bank for financial institutions, as well as expenses related to technology, platforms, and other necessary resources.

As a result, estimating a generic cost is nearly impossible, as it varies case by case, depending on the services offered and how they are delivered.

What can be stated with certainty is that partnering with a technology infrastructure and regulatory compliance provider—by opting for the BaaS model—significantly reduces costs compared to developing everything from scratch.

What do customers expect from a digital bank?

As mentioned earlier, one of the key characteristics of a digital bank is its goal of simplifying and removing bureaucracy from financial services for consumers.

Therefore, digital banking users expect features such as ease of use, transparency, security, and efficient customer service.

These are precisely the factors that differentiate traditional banks from neobanks, which are more aligned with the modern demands of today's consumers.

What are the advantages of creating a digital bank?

Now that we have covered the key aspects of how to create a digital bank, it is time to highlight the various advantages of having your own banking operation.

These benefits apply both to fintechs, for which financial services are the core business, and to companies from other sectors looking to enter the financial system. Take a look!

Offering financial services without becoming a banking institution

The BaaS model and the ability to create a digital bank are ideal for companies that want to start offering financial services quickly and with minimal investment.

This type of platform allows businesses to bypass many of the time-consuming, costly, and complex steps traditionally involved in establishing financial services. As a result, companies can offer financial solutions without the bureaucracy and regulatory demands of becoming a fully licensed bank.

Improving financial management and reducing costs

By operating its own banking structure, a business can optimize financial management, streamlining transactions and reducing costs. Payments to suppliers, partners, and employees can be processed more efficiently, while financial control becomes simpler and more accessible.

Expanding the portfolio, attracting customers, and creating a new revenue stream

For companies already operating in other sectors—such as retailers—creating a digital bank enables them to expand their portfolio by adding financial services, thus attracting new customers.

Additionally, user transactions and service fees generate direct revenue for the company, turning financial services into a new and profitable business model.

Seizing market opportunities and driving financial inclusion in Latin America

Providing a better experience for increasingly demanding consumers, addressing the specific needs of niche markets, and tapping into various business opportunities are additional advantages of creating a digital bank.

In Latin America, where many people remain excluded from the financial system, the rise and expansion of digital banks have played a crucial role in promoting financial inclusion. Entering this market means actively contributing to an important movement toward greater accessibility in the region.

Beyond these benefits, many other opportunities await in the Latin American market. What are you waiting for to be part of this revolution with Dock? Contact our team and let’s move forward together!

How to create a digital bank: key takeaways from this article

The Latin American financial market is evolving rapidly, and since there is still significant room for new entrants, understanding how to create a digital bank and take part in this movement is essential.
Banking as a Service (BaaS) enables any company to offer financial services quickly and affordably, without having to become a financial institution. This is made possible through open APIs.
Embedded Finance is transforming the industry by decentralizing financial services and allowing new players to enter the system.
To create a digital bank, it is necessary to understand the services your business will provide, find the ideal BaaS provider and understand the regulatory issues involved.
Among the many advantages of launching a digital bank are the ability to offer financial services without becoming a licensed bank, expand the product portfolio, attract customers, and generate a new revenue stream.
With BaaS, companies can tap into new market opportunities and contribute to financial inclusion across Latin America.

How to create a digital bank: the roadmap for businesses looking to embark on this journey

What is a digital bank?

What is the current landscape of digital banks in the market?