Building a digital bank: The ropes for businesses looking to get started on this journey

Publicado em 5 de julho de 2022.

Tempo de leitura 8 minutos de leitura

Latin American countries are going through a revolution in financial systems. Apart from the ‘boom in fintechs’, players from different industries are joining this universe and taking advantage of the endless opportunities it provides. Once there’s still plenty of space for new players to enter, understanding how to build a digital bank and taking part of this movement is essential.

Providing digital financial services has become something simple and possible thanks to the Banking as a Service (BaaS) model. That solution based on APIs enables any company or institution to seamlessly and quickly have their own ‘bank’, with their brand and business model.

Also, the ability to provide an end-to-end experience in digital banking without the need to become a banking institution is related to the Embedded Finance phenomenon, which is causing a major revolution in distributing financial services not only in Latin America, but also around the world.

However, more than covering the theory behind that transformation, this article aims to provide a hands-on discussion on how to build a digital bank and its advantages.

 

Building a digital bank from scratch: The model enabling different players to take part in it

The ‘as a service’ concept is a top trend nowadays, and the expression is used to denote services flexibly provided and easily and seamlessly contracted. In this model, there are solutions in several areas which have originated, for instance, Software as a Service, Data as a Service and, of course, Banking as a Service.

banking as a service

 

API platform

For BaaS, customers are able to access it through Application Programming Interface (APIs) technologies. By having those Open-Source API platforms in place, data can be aggregated and crossed in a streamlined manner.

Therefore, customers pay for the solutions they use and are able to manage accounts they operate by providing services such as payment, credit or debit card purchases and other financial transactions.

 

Embedded Finance

As we know, thanks to the technology as a service model, we watch as Embedded Finance evolves—which outlines the ability to distribute financial services to companies that don’t necessarily operate in that industry.

So, the phenomenon is related to this huge transformation in the financial industry, which is bringing ‘traditional’ and new financial service providers even closer together—although those new providers are not banks, they also leverage BaaS.

In the latter, we have from retailers to tech and phone companies and other industries, which have started joining the system as technological and regulatory barriers are getting more achievable and providers in Banking as a Service, such as Dock, start enabling the opportunity.

 

Get to know use cases on building a digital bank in different industries:

 

Step-by-step walkthrough: Building a digital bank

Fintechs operating exclusively in this area, as well as players from different industries looking to provide financial solutions, need to follow different steps in order to join the industry.

That’s why it is important to know how to build a digital bank and what steps are required in the process. Here we’ll cover some of the essential stages in this journey.

 

Understand how your business will operate

Open-Source BaaS platforms based on APIs enable a wide range of options in solution customization and, thus, are able to meet different kinds of demand. That’s why it is important for the business to keep in mind the way they want to operate so that they can stand out in the industry or, where applicable, meet the needs for an existing customer portfolio.

When it comes to building a digital bank, it is necessary to define the services to provide users with. As we can notice in Dock’s solutions in Digital Banking, the range of possibilities is quite extensive. It is possible to provide a complete digital account, which quickly and securely enables banking transactions and even loans, or one that is tailored to your business, including the following:

  • Withdrawals;
  • Debit or credit cards;
  • Bill payment;
  • Instant payment;
  • Wire transfers;
  • ‘Boleto’ (bank slip) generation;
  • Prepaid recharge and vouchers;
  • Personal loans;
  • Interest checking account.

 

Find the ideal BaaS provider

Finding the ideal BaaS provider—one that has a platform tailored to your business model and offers everything your company needs—is also one of the essential steps for building a digital bank.

Dock, for instance, takes care of the whole treasury process for your company, including opening accounts, processing and tracking transactions, from authorizing to settling, while also ensuring quality and security in operations. Your digital banking platform includes:

  • Digital customer onboarding (KYC, biometrics, etc.);
  • Anti-fraud systems in every transaction;
  • Bill payment management (credit and debit ledger);
  • API gateways with complete, generally available documentation;
  • Full accounting and regulatory support;
  • Tools for financial reconciliation.

 

Have knowledge on regulatory issues

Apart from the technological matter, an important, challenging aspect an entrepreneur also needs to know about when building a digital bank involves regulatory issues related to financial services.

It is necessary to have knowledge on requirements from regulatory agencies and understand if the BaaS provider is able to ensure accountability and the equipment required to comply with regulations.

 

The advantages of building a digital bank

Now that we’ve covered the main points on building a digital bank, it’s time to illustrate aspects through which the bank itself may bring benefits—for fintechs which will have those services as their main activity, as well as businesses in different industries which are looking to join the financial system.

 

Providing financial services without the need to become a financial institution

The BaaS model and the ability to build a digital bank is ideal for companies looking to provide financial services with very little investment and a limited timeframe.

By using this kind of platform, several steps in the process — that is usually time- and energy-consuming and expensive — are able to be performed more quickly. So, an organization now is able to operate by providing financial solutions without the bureaucracy and requirements applied to actual banking institutions.

 

Improving financial management for your business and reducing costs

By relying on the bank itself, your business is able to optimize financial management, while streamlining transactions and reducing costs. You can pay providers, channels and employees in a quick, dynamic way and control your finances in a more streamlined, affordable way.

 

Expanding the portfolio, attracting customers and having new sources of revenue

For businesses already operating in a different industry, such as retailers, building a bank enables the company to expand their portfolio by including financial services and, thus, attract new customers.

Besides, transactions users make, as well as their applied fees, are kept by the company — therefore, it is investing in a new source of revenue for the business.

 

Taking advantage of different market opportunities and contributing to the financial inclusion in Latin America

Being capable of delivering the best experience to the customer, who is increasingly demanding, meeting specific needs for certain niches and taking advantage of different market opportunities is another great advantage of building a digital bank.

 

As well as those mentioned, there are many other opportunities to take advantage in the Latin American market. What are you waiting for to take part in that revolution?

We believe in technology as the main booster for helping customers grow as well as transforming the role finances play in our lives, moving our society forward. Get to know more about it in our video manifest:

 

Building a digital bank: Takeaways from this article

  • The Latin American financial market is going through a revolutionizing moment, and since there’s still plenty of space for new players to enter, understanding how to build a digital bank and taking part of this movement is essential.
  • Banking as a Service enables any company to quickly and affordably provide financial services without the need to become a financial institution. That is also possible thanks to Open-Source APIs.
  • Embedded Finance is a phenomenon that is transforming the industry, because it distributes financial services and enables new players to join 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.
  • Numerous advantages in having your own bank include offering financial services without the need to become a banking institution, extending the portfolio and having a new source of revenue.
  • Besides, with BaaS, it is possible to take advantage of different market opportunities and contribute to the financial inclusion in LatAM, such as B89 and Coink already do.

 

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