Step-by-step guide on how to build a digital banking platform

So what is a digital banking platform? It’s a software solution that allows customers to get financial services online, using web or mobile apps. Digital banking features are usually the same as traditional banking ones, including

The main difference between traditional and digital banks from the customer’s perspective
is their availability. While physical bank branches work according to their schedule, digital banking services are available 24/7 from anywhere. 

Banking solutions are beneficial for customers seeking convenience and accessibility and for fintech companies. Here are some key points:

Let’s get into more detail on how to develop online banking applications.

Digital banks should include basic banking features, such as 

Think about additional features that will make you stand out. According to research, US users consider the following features as most valuable: 

Digital banks are typically required to provide real-time and 24/7 on-demand availability of services, flexible and scalable infrastructure, an all-round customer view, and efficient omnichannel management. Choosing an efficient technology stack is crucial for digital banks, as technology is at the core of their operations.

A set of technologies should be chosen for each system layer:

A specific set of technologies for each layer should be discussed with the team of experts after detailed research of the business requirements.

Banks and financial institutions are subject to many regulations. Some countries, like UAE, South Korea, Singapore, and others, have digital-specific licenses for digital banks. This license defines what products and services a digital bank can offer, its target segment, and a permitted physical presence.

Other countries, including the United States and some European ones, regulate digital-only banks with standard banking licenses, requiring a full range of permissions. That’s why some digital banks prefer to start with an alternative, like a license for e-payments or e-wallets. If they decide to scale up, it’s possible to get additional licenses for other services as they appear.

The licenses are usually issued by competent authorities, for example, the central bank. The specific authority involved will vary depending on the geographic location of incorporation and the markets in which you are planning to operate.

Once you have defined the app’s concept, you can begin working on the UI design for the future app. It’s important to have a clear understanding of the navigation, functionality, tech stack, and fintech-specific aspects of the product before starting the design process.

The prototype will demonstrate the logic and structure of the platform. After creating the prototype, you can test it with the target audience and address any weaknesses in the app. Additionally, you can refine the design and enhance its usability based on user behavior.

Since clients will interact with the UI directly, the design must be clear and intuitive. That’s why it’s crucial to have senior designers who would create and advocate for a nice look and comfortable experience.

Digital banking systems are prone to the same threats as any other digital solution, so the system should be protected from identity theft, data breaches, man-in-the-middle attacks, etc. In addition, some specific features are recommended.

Two-factor authentication helps additionally protect clients from unauthorized access to their accounts. An electronic system called “know your customer” helps verify the customers before the transactions to prevent money laundering, evading taxes, and other illegal financial operations made through your banking system.

OAuth 2.0 is a protocol designed to improve security in authentication and authorization processes. One of the fundamental principles of OAuth 2.0 is that APIs will only redirect users to pre-registered URLs, thereby reducing the risk of redirection attacks and protecting authorization codes and access tokens from interception by malicious actors.

A digital banking solution can integrate with third-party services to let customers access additional functionality within a single system. These functions can include POS payments, e-commerce operations, payroll management, and more.

Integration creates a background for a versatile financial ecosystem known as open banking. For instance, customers can integrate their bank accounts with services that help track finances, monitor savings, and access account management tools. The third-party services must be reliable and trustworthy so that customers can have confidence in the security of their data.

At this stage, all system components should be thoroughly tested before the launch. The quality assurance stage includes unit and integration testing to make sure that each separate component works properly and that all of them are working fine together. Security should be also tested according to the requirements.

When the platform is well-tested, it’s time to launch and present it to your customers. Once you create a product and it goes live, it’s crucial to understand how to improve and optimize it. You may also want to launch a marketing campaign to present its value proposition and emphasize its benefits.

Add products that earn interest into your business plan. When the digital banking development is over and the platform goes live, its journey just begins. The launch is just a first step and you have to keep the product afloat.

The banking industry is constantly changing, bringing rapid changes, so be ready to adapt. Compared to traditional banks, digital banks are better fitted to navigate the evolving landscape, yet they still aren’t immune to changes.

Since most customers expect the banking system to be free, think about alternative ways of increasing your revenue. Digital banks can earn from collaboration with travel, healthcare, education, or other industries that integrate financial products into these verticals.

We briefly discussed how to build a digital bank and now let’s proceed to the challenges you may face while building one.

Challenge. To establish a digital bank, it is crucial to thoroughly understand and adhere to corresponding regulations to guarantee legal operations and safeguard consumers. Digital banking platforms must comply with numerous rules depending on their region. They include anti-money laundering (AML), know-your-customer (KYC), data privacy laws (GDPR or CCPA), consumer protection laws, and more. Regulations vary across countries and regions, requiring platforms to stay updated on new laws and implement changes accordingly constantly.

Solution. Use advanced compliance monitoring systems and work with legal and regulatory experts to implement automated checks and balances.

Challenge. The banking software development deals with highly sensitive personal and financial information, so the system must be protected against hacking, phishing, and ransomware. Compliance with data protection regulations further complicates security requirements.

Solution. Implement multi-factor authentication, encryption, and endpoint security solutions. In addition, regularly conduct penetration tests and audits to make sure the banking solution is safe and reliable.

Challenge. As the user base of a digital bank grows, the platform must scale to accommodate increasing numbers of transactions, data storage needs, and real-time processing requirements. The infrastructure must handle fluctuations in demand, especially during peak times like holidays or major product launches. Scaling a digital banking platform requires a flexible architecture that can dynamically adjust to demand.

Solution. Cloud-native architecture with microservices can help scale the platform. Using platforms like AWS, Google Cloud, or Azure allows for the elastic scaling of resources as demand increases.

Challenge. A seamless and user-friendly UX is critical for digital banks to retain customers and compete with other fintech solutions. Customers expect easy navigation, fast transactions, and minimal friction in their interactions with the platform. Balancing security with ease of use can be challenging. For example, two-factor authentication can introduce friction into the user experience. Additionally, developing a consistent UX across mobile, desktop, and other devices is complex.

Solution. Continuous testing and feedback loops are crucial for refining UI and UX. Use design thinking principles to prioritize ease of use, while maintaining secure and efficient transaction processes.

Challenge. Many digital banks need to integrate with legacy systems, especially if they are part of a larger traditional financial institution. These legacy systems might not be designed for digital platforms, which can make integration difficult. Legacy systems are often rigid, outdated, and incompatible with modern technologies, making integration cumbersome. Data migration, compatibility issues, and limited API availability complicate the process.

Solution. Use middleware or API layers to connect the digital platform with legacy systems, allowing for smooth communication between old and new technologies. Gradual modernization of legacy systems using microservices architecture can also help.

Challenge. Digital banks generate and store vast amounts of data, including transaction histories, customer information, and behavioral analytics. Proper data management is crucial for optimizing services, maintaining compliance, and improving decision-making. Data needs to be stored, processed, and accessed in a way that complies with privacy regulations and ensures integrity. Additionally, creating meaningful insights from large datasets requires significant analytical capabilities.

Solution. Implement advanced data management solutions such as data lakes, cloud storage, and big data analytics platforms to organize and analyze data efficiently. Ensure compliance through encryption and access controls.

Challenge. Digital banking platforms often rely on third-party services for critical functions like payment processing, fraud detection, customer identity verification, or cloud hosting. While these services help speed up digital banking development, they introduce dependencies that can impact performance and compliance. If a third-party service has an outage or security issue, it can impact the entire banking platform. It may be challenging to ensure third-party vendors meet compliance standards and adhere to security protocols.

Solution. Perform thorough due diligence before partnering with third-party providers. Establish Service Level Agreements (SLAs) that ensure uptime and security compliance, and regularly audit vendors for adherence to regulatory standards.

Challenge. To succeed digital banks must build and maintain customer trust. Customers are often hesitant to switch from traditional banks to digital platforms due to concerns over security, service quality, and stability. Winning customer trust takes time, and any missteps like security breaches or service outages can lead to a loss of confidence. In addition, some customers still prefer face-to-face banking services, which digital banks don’t offer.

Solution. Build trust through transparent communication, high-level security measures, responsive customer support, and consistent performance. Offering incentives for new customers, and ensuring an easy onboarding process, can also increase adoption. 

Putting the technology questions aside, there are some hints on what to pay attention to while planning your digital banking journey.