Launching a Neobank in 2025: The Regulatory Pathway and Minimum Viable Licence

What a Neobank Actually Requires

The term "neobank" describes a digital-first financial services provider that offers banking-like services — accounts, payments, cards, and potentially lending — without necessarily holding a full banking licence. The regulatory pathway for launching a neobank depends on which services the business intends to offer, which markets it targets, and whether it will hold its own licence or operate under a Banking-as-a-Service (BaaS) arrangement.

In 2025, the minimum viable neobank requires four core capabilities: account issuance (IBANs or virtual accounts), payment processing (SEPA, Faster Payments, or equivalent), card issuance (Visa or Mastercard debit or prepaid cards), and a mobile application as the customer interface.

The Licensing Spectrum

Option 1: Full Banking Licence

A full banking licence under the Capital Requirements Directive (2013/36/EU) permits the holder to accept deposits and extend credit. This is the most comprehensive authorisation but also the most expensive and time-consuming to obtain.

• Capital requirement: Minimum €5 million (though regulators typically expect significantly more)
• Timeline: 12-24 months
• Regulatory burden: Full prudential supervision, liquidity requirements, deposit protection scheme membership, recovery and resolution planning
• Suitable for: Neobanks intending to offer lending products funded by customer deposits

Notable examples: Monzo, Starling Bank, and N26 all hold full banking licences.

Option 2: EMI Licence

An electronic money institution licence under EMD2 (Directive 2009/110/EC) permits the holder to issue electronic money, provide payment services, and — through practical application — offer account-like services with IBANs, card programmes, and payment functionality.

• Capital requirement: €350,000
• Timeline: 4-12 months depending on jurisdiction
• Regulatory burden: Safeguarding requirements, AML/CFT compliance, ongoing prudential reporting
• Suitable for: Most neobanks that do not require deposit-taking or direct lending

This is the most common licensing pathway for neobank launches. Notable examples: Revolut initially operated on an EMI licence before obtaining a banking licence.

Option 3: Payment Institution Licence

A PI licence under PSD2 (Directive (EU) 2015/2366) permits the holder to provide payment services but not to issue electronic money. The distinction is subtle but important: PI-licensed firms cannot issue e-money wallets in the same manner as EMIs.

• Capital requirement: €20,000-€125,000 depending on services
• Timeline: 3-9 months
• Regulatory burden: Lower than EMI, but with limitations on product scope
• Suitable for: Payment-focused fintechs that do not require account or e-money functionality

Option 4: BaaS Model (No Own Licence)

Under a Banking-as-a-Service arrangement, the neobank operates as the customer-facing brand while a licensed BaaS provider handles the regulated infrastructure. The neobank is typically appointed as an agent or distributor of the BaaS provider.

• Capital requirement: None (the BaaS provider holds the licence)
• Timeline: 3-6 months to launch
• Regulatory burden: Minimal direct regulation, but subject to the BaaS provider's compliance requirements
• Suitable for: Early-stage neobanks seeking rapid market entry before obtaining their own licence

Jurisdiction Selection

The choice of licensing jurisdiction determines cost, timeline, and market access:

Lithuania The Bank of Lithuania has become the EU's most popular EMI licensing jurisdiction. Processing times of 4-6 months, reasonable substance requirements, and full EU passporting make Lithuania the default choice for many neobank launches.

United Kingdom The FCA licences EMIs and PIs for the UK market. Post-Brexit, a UK licence does not provide EU market access, requiring separate EU licensing for continental customers. Processing times are 6-12 months.

Ireland The Central Bank of Ireland offers EMI and PI licensing with access to the EU single market and strong banking infrastructure. Processing times are 6-9 months but substance requirements are higher than Lithuania.

Malta The MFSA provides EMI licensing with EU passporting. Processing times are 8-12 months. Malta is particularly suitable for neobanks with crypto or gaming-adjacent business models.

Building the Product Stack

IBAN Issuance

Customers expect an IBAN (International Bank Account Number) as the foundation of their neobank account. IBANs can be obtained through:

• Direct issuance: An EMI-licensed entity can issue IBANs through its banking partner, typically denominated in the currency of the licensing jurisdiction (Lithuanian LT-prefix IBANs, for example)
• BaaS provider: A BaaS partner such as Railsbank (now Railsr), Modulr, or Banking Circle can provide IBANs under their own licence
• Virtual IBANs: Some providers offer virtual IBANs that route to a pooled account, which has different regulatory treatment than dedicated IBANs

Card Programme

A card programme requires:

• Card network membership: Visa or Mastercard programme membership, either directly or through a BIN sponsor
• BIN sponsorship: A licensed institution that sponsors the neobank's access to the card network's Bank Identification Number (BIN) range
• Programme manager: An entity (often the neobank itself or a third-party programme manager) that manages cardholder onboarding, transaction authorisation, and dispute handling
• Card processor: A technology provider that handles transaction processing, authorisation messaging, and settlement (examples: GPS, Marqeta, Enfuce)
• Card fulfilment: Physical card production and delivery, or virtual card provisioning for mobile wallets

The timeline from card programme initiation to first issued card is typically 6-9 months.

Payment Rails

A neobank must connect to relevant payment systems:

• SEPA (Single Euro Payments Area): For euro-denominated transfers across the EU
• SEPA Instant: For real-time euro transfers (mandatory for EU PSPs from January 2025 under Regulation (EU) 2024/886)
• Faster Payments: For GBP real-time transfers in the UK
• SWIFT: For international transfers outside the SEPA zone
• Direct connectivity vs. access through a sponsor bank: Direct participation in payment schemes requires significant investment; most neobanks access payment rails through their banking partner or BaaS provider

Mobile Application

The customer-facing application is the neobank's product. Key requirements include:

• Account opening with digital KYC (identity verification, liveness checks, document verification)
• Balance display and transaction history
• Payment initiation (P2P transfers, bill payments, international transfers)
• Card management (freeze/unfreeze, PIN management, spending limits)
• Notifications and spending insights
• Multi-currency functionality (for international neobanks)

Cost Structure

Component	Cost Range
EMI licence (advisory + capital)	£200,000-£500,000
Card programme setup	£100,000-£250,000
Mobile app development	£150,000-£400,000
AML/KYC infrastructure	£50,000-£150,000
Banking/BaaS integration	£50,000-£150,000
First-year operations	£200,000-£600,000
Total	£750,000-£2,050,000

For neobanks launching via a BaaS model without their own licence, the total cost reduces to approximately £300,000-£800,000.

Timeline

A realistic timeline for a neobank launch with an own EMI licence:

Phase	Duration
Business planning and jurisdiction selection	1-2 months
EMI licence application preparation	2-3 months
Regulatory processing	4-9 months
Card programme and banking setup	6-9 months (overlapping)
App development and testing	4-8 months (overlapping)
Beta launch and soft rollout	1-2 months
Total	12-18 months

For BaaS-based launches, the timeline compresses to 4-8 months.

Key Takeaways

• An EMI licence is the minimum viable licence for most neobank business models, offering account issuance, payment services, and card programme capability at a fraction of the cost of a full banking licence
• Lithuania is the fastest and most cost-effective EU jurisdiction for EMI licensing, with full EEA passporting
• A BaaS model enables market entry in 4-8 months without own licensing, but at the cost of margin, control, and long-term strategic independence
• Card programme setup requires 6-9 months and involves BIN sponsorship, card processing, and network membership — this workstream should run in parallel with licensing
• Total launch costs range from £300,000 (BaaS model) to £2 million (own-licence model with full product stack)
• SEPA Instant payment capability is now mandatory for EU PSPs, and should be factored into the payment infrastructure design from day one
• The neobank market is mature enough that regulators expect well-capitalised, well-governed applicants — the era of minimal viable compliance is over