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How to Start an Internet Bank

Do you want to start an Internet Bank? If YES, here is a complete guide to starting an Internet Bank with NO money and no experience. The advent and growth of technology has affected every aspect of human existence and survival. This is no different for banking, causing a shift in focus to internet banks. Internet banks are banks that have no physical locations, but they offer everything else that most traditional banks do.

While they do not offer live assistance in a face-to-face environment, they do offer assistance over the phone. These types of banks are open for business anywhere there is an internet connection. Apart from the duration when website maintenance is being done, they are open 24 hours a day, 365 days a year. If internet service is not available, customer service is normally provided around the clock via telephone.

Also, lack of huge infrastructure and overhead costs allow these banks to pay higher interest rates on savings and charge lower mortgage and loan rates. Some offer high-yield checking accounts, high-yield CDs and no-penalty CDs for early withdrawal.

Also note that these banks have more robust websites that offer a comprehensive set of features that may not be found on the websites of traditional banks. These include functional budgeting and forecasting tools, financial planning capabilities, investment analysis tools, loan calculators and equity trading platforms.

They also offer free Internet bill paying, Internet tax forms and tax preparation. We also believe that accounts in these banks can be automatically funded from a traditional bank account via electronic transfer.

Also have it in mind that a lot of Internet banks offer unlimited transfers at no cost, including those destined for outside financial institutions. Individuals are now becoming fond of Internet banks especially because accounts are easy to set up and they need no more information than a traditional bank account.

A lot of these banks offer the option of inputting your data on the Internet or downloading the forms and mailing them in. If you run into a problem, you have the option of calling or emailing the bank directly. These types of banks possess a lot of advantages compared to traditional banks. Read on as we take you down the path of establishing this business successfully.

18 Steps to Starting an Internet Bank

1. Understand the Industry

Reports have it that the Almighty retail banking sector experienced transformation with the inception of internet banking in the mid-1990s. Customer convenience and ease of handling banking transactions 24/7 all year round from home and other suitable locations is the primary advantage offered by internet banking.

The report evaluates the dynamics of internet banking market on three perspectives, which are informational services, transactional services, and communicative services. Each of these segments are sub-segmented and are analyzed based on which internet banking market shares and projections are estimated in the report. We believe that the

Internet banking sector has emerged as a popular and ubiquitous business idea for anyone willing to secure a market share in the general Internet industry due to the incessant Internet penetration and changing consumer preferences.

Consumers are currently asking for a higher degree of transparency and flexibility for banking operations that is predominantly driving the global internet banking market.

Within the past few years, about 65% of the banking operations, from shopping to placing orders to payment were transacted Internet. Among the different consumer groups based on their ages, internet banking is most preferred by consumers in the age group of 25 to 55 years, consumers in the age group of 18 to 35 years preferred mobile banking, while people above 55 years of age prefer ‘brick and mortar’ banking.

This has drawn the attention of the general public to the various advantages of a direct or Internet bank. Experts believe that the widespread use of Internet in developed countries has spurred extensive use of e-commerce and Internet payment services.

Internet banking market is believed will grow significant during the forecast period due to the increase in the state institutions contributions for the expansion of alternate payment channels. However, concerns regarding protection of financial information may hinder the growth of the global internet banking market.

2. Conduct Market Research and Feasibility Studies

  • Demographics and Psychographics

We can all agree that the internet is growing fast, yet the only thing growing quicker is Internet banking. It is growing across a deep and wide demographic that includes age, income and gender. It’s very important to note that the internet hardware is now in 95 million households.

Of that number, internet banking occurs in approximately 72,500,000 of those households. About half of those households also use the bank’s bill pay rather than going to a website and paying what they owe. We also believe that the option to participate in paperless billing has become more popular much faster than originally thought.

Research has shown that this trend began with computer-knowledgeable, tech-savvy young males, which is common when new technology hits the market. It became a household necessity when the remainder of the population found out about it. From busy teens to the elderly and disabled, internet banking is now a normal part of our way of life.

Have it in mind that one segment of the population appears to delegate the services that a bank offers. They are mainly people born between 1970 and 1990. They tend to embrace technology as fast as it comes on the market. This group is also adept at finding others to do some technology tasks, especially direct billing services.

These group members, until now, have been making biller-direct payments, dealing with student loans, credit cards and living daily life on campus in hand-to-mouth fashion.

Experts expect this group of people to drive this aspect of technology as it goes forward. This group will become 52% of all households using internet banking by 2018. Until recently, internet banking saw annual spurts of 25-27%, which slowed to 8% and it would slow further, according to the forecasters.

From 2009 until 2019, growth should be approximately 4% per year as 66 million households enter the fold. We believe that industry clients generally learn about these shortcuts of modern life by word-of-mouth.

Note that successful first time logins will bring more use from seniors with memory deficits. They often make requests to internet banking personnel to recover a user ID and/or passwords.

3. Decide Which Niche to Concentrate On

First you need to understand that starting and running a bank generally needs dedication, capital funding and good knowledge of the industry. Extensive information about the individual organizer(s), the business plan, finances, capital adequacy, risk management infrastructure, and other relevant factors must be provided to the appropriate authorities in order to gain approval.

You also need to know that the best guarantee of success is to have a solid business plan in a market with excellent growth opportunities.

Starting a new bank is also an intensely detailed undertaking in which a number of key decisions must be made and important issues addressed. Also have it in mind that choosing a niche or specialty items are what stand out in the Internet.

These include international products that are not readily available in the local market; products that cater to certain hobbyists or communities; or products that are unique only to the regional market. We suggest you research this industry carefully and ask questions before starting this business fully.

The Level of Competition in the Industry

Indeed the global internet audience continues to grow steadily, with the worldwide base of broadband internet users (including fixed and wireless) in the 3.5 billion range as 2017 began. We believe that this vast base of high speed internet users encourages businesses to innovate in order to offer an ever-evolving array of Internet services.

Sectors that are growing very rapidly in the Internet include the sale of entertainment products, travel, apparel and consumer electronics. The most powerful trends on the internet include access via wireless devices, the migration of entertainment including TV programming, to the web and cloud-based software-as-a-service.

It’s very important to state that consumers are more focused than ever on finding the best prices, as consumer attitudes and shopping habits changed dramatically as a result of the 2007-09 recession.

This is why e-commerce firms that offer high value at consistently low prices are well-positioned to prosper. Reports have it that the standout winner in e-commerce generally continues to be Amazon, where sales have soared thanks to aggressive discount pricing, free shipping for its “Prime” members and an ever-growing variety of merchandise categories.

The Internet will keep growing as the world is currently getting conscious of the importance of data management, and the ease it brings to our everyday activities. We believe that this industry is highly competitive but not yet concentrated as it’s a new industry with a huge opening for focused entrepreneurs.

4. Know Your Major Competitors in the Industry

  • ING direct
  • Ally bank
  • Connexus Credit Union
  • Bank of Internet USA
  • PerkStreet
Economic Analysis

The growing human dependence on the Internet and powerful Internet technology has given way to a new area of commerce known as electronic commerce or e-commerce. E-commerce simply means doing business electronically.

In other words, commercial activities are performed on the Internet such as buying and selling goods, electronic funds transfer, and direct consumer marketing. Especially with a huge percentage of the population having access to Internet at home and on the go, consumers are opting to shop on the Internet rather than going the conventional way to ‘brick and mortar’ shops.

Things you should consider or rather plan accordingly when starting this business may include…

  • Flexible payment methods
  • Secure electronic transactions
  • Inventory control
  • Quick and reliable logistics services:

5. Decide Whether to Buy a Franchise or Start from Scratch

From our detailed research, we were able to note that buying a franchise is the best way to start up an Internet bank business. You need to understand that an existing Internet bank business will have honed its operations over time. It simply means that you will inherit a business with streamlined and documented systems.

We believe that it makes it very easy for you to learn the ins-and-outs of the business through the seller and any experienced staff who’ll stay with the business. Existing staff often have more of a coalface perspective than the boss, they can provide valuable insight into how the business runs and areas that could be improved. In such cases, staff are likely to feel more comfortable communicating their concerns to a new boss, and may be able to suggest ways of solving the problems.

One unique advantage of inheriting staff is that you don’t need to recruit and train them. It will in the long run save you time, money and energy that you can focus elsewhere in the business. Always try to identify early on if there are any staff morale issues that need addressing, or if staff are resistant to new ownership and the changes this might bring.

We suggest you consider talking to the staff and find out if they are happy in their roles, if there is anything that would help them do their jobs better, and what concerns they might have about a new owner coming in.

6. Know the Possible Threats and Challenges You Will Face

Just because this business is Internet based doesn’t make it less easy. An Internet bank just like any other known business has its own challenges and problems. A lot of individuals will leverage your business, which is why you should strive to avoid any threat or rather take care of them immediately they surface.

  • Buying a domain name from a domain registrar
  • Developing incentives for people to join your Internet bank
  • Securing the permits needed in your state to operate a service business
  • Buying a platform to run your Bank store
  • Differentiating yourself from competing Internet banks
  • Naming your Internet bank

7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)

When it comes to choosing a suitable structure for an online business, new entrepreneurs usually want to know whether they should form a corporation or LLC. Internet business attorneys often recommend forming an LLC and then elect S-corporation status to maximize tax benefits.

Businesses with multiple owners can combine the flexibility of using an LLC with the tax advantages of an S-corporation. The certainties of electing S corporation status and paying only payroll taxes on wages the company earns can be a clear benefit. Indeed we agree this is a blanket statement and there may be other reasons to form an S corporation outright instead, or some other business entity.

First and foremost, you need to understand that an LLC has far less corporate formalities to follow. It simply means there will be less hassle and paper work involved with using an LLC. If you use a single member LLC, you will be classified as a sole-proprietor for tax purposes and pay self-employment taxes on all income.

If you make the S selection, you will end up being a single member LLC that is taxed as an S-Corporation. Have it in mind that this gives you the power of being the only owner without the tax penalty of being declared a sole proprietor.

But if you are the sole owner in an S corporation tax structure, you will be a W2 employee as opposed to self-employed. We strongly suggest you consult a qualified accountant to learn more.

8. Choose a Catchy Business Name

  • World Treasures
  • Unity Bank Centre
  • Finders Keepers Bank
  • Life Bank
  • Rerun
  • Sand Dollars
  • First Chance
  • Second Image
  • Whale circle
  • Bank Nation
  • Venice
  • Value Village
  • Bank World

9. Discuss with an Agent to Know the Best Insurance Policies for You

When planning to start this business, you need to understand the risks and challenges that web-based businesses face. Have it in mind that you will need a tailored e-commerce insurance solution built around your activities. Make it your primary duty to mitigate risk by making your site as safe as possible. The internet is not a zero sum game when we’re talking about theft and scams. Insurances to consider may include…

  • Internet liability insurance
  • General liability Business insurance
  • Advertising agency insurance
  • Creative insurance
  • Copywriters insurance
  • Business equipment insurance
  • Business interruption insurance
  • Business buildings insurance
  • Business contents insurance
  • Professional indemnity insurance

10. Protect your Intellectual Property With Trademark, Copyrights, Patents

Any business presently trading or considering trading on the internet needs to check what intellectual property rights it owns and ensure that it is fully protected. Indeed a lot of ideas can be protected in different ways, depending on how they are expressed.

These intellectual outputs and its protection is known as intellectual property, a collective term for different types of asset including copyright, trademarks, patents, design rights and others. These assets are intangible, but can be very valuable since they enjoy legal protection.

In an internet bank business, a number of intellectual property rights will exist in your website. Have it in mind that logos or branding are likely to be protected by registered trademark rights or the law of passing off.

We believe there will also be database rights in any database underlying your website. Most of your website, including the text, design, graphics, data, website layout and any music, broadcasts, software and images on your website should be protected by copyright.

11. Get the Necessary Legal Documents You Need to Operate

We believe that the legal documents required to start and manage your Internet bank business is perhaps the basic legal requirements needed to run a bank business in the United States of America simply because of the nature of the business. Documents play a crucial role in protecting the interests of the business and business owners over the course of a company’s lifetime. You would need;

  • Social Security number
  • Tax identification number
  • Employer’s identification number
  • Insurance
  • Non-disclosure agreement
  • Internet privacy policy
  • Internet term of use

12. Raise the Needed Startup Capital

The importance of funding in the banking business cannot be overemphasized. Finance is the primary tool that will dictate the capacity and success of your bank. Don’t be deceived because it’s an online platform that you will need little or no funds to start up.

You will need adequate funding to launch a standard Internet bank, and trust me it can be challenging raising capital to launch a business idea. Your idea must be workable and promising for you to be able to secure finance from financial institutions or from angel investors. Ways to get funding may include;

  • Personal savings
  • Business loans
  • Angel investors
  • Social investment
  • Family and friends
  • Partners

13. Choose a Suitable Location for your Business

Just in case your Internet bank business requires a storefront, we advise that you go for an attractive location in your city’s business district. Select tasteful, conservative furnishings; hire friendly and engaging staff members who can set new Internet bank clients at ease.

Have it in mind that most times you really won’t need a business location but if you do, locate one big enough for daily bank activities with all the amenities that comes with standard bank locations. Locating your bank in an area with considerable traffic will help your bank gain customers.

14. Hire Employees for your Technical and Manpower Needs

One unique thing about being an Internet entrepreneur is that your daily activities will never be a constant routine and it may not need to be conducted in any particular order.

But still a typical day often involves a great deal of banking activities like money transfers and cash enquiries, and also to creatively describe and competitively render your services in order to stand out from the competition.

Bankers (online and offline) need to have good business sense and must be good with numbers. You will be responsible for overseeing the profitability of the bank so having a degree in finance, business administration, accounting, or related field is helpful.

It’s important that you have or develop marketing skills to succeed in this business. This is because everything from choosing a sensible website name to writing evocative descriptions of services being rendered involves the same skills that go into traditional advertising and marketing.

We believe that an experience in advertising your services via social media as well as more traditional methods (such as sending newsletters to previous buyers) can help make sure that you have a steady stream of both new and returning business. We also suggest you hire someone with familiarity in starting a bank.

This is a complex process which is controlled almost entirely by state and federal regulation. You must navigate a complex maze of regulatory rules and paperwork. And, the risks are high as regulators may deny your application to become a bank.

We believe that banks generally make money by taking in deposits and lending them out to other people or businesses. Have it in mind that a bank’s primary cost is the infrastructure they build, including buildings and labour costs. But the basic function of a bank is simple.

The bank must invest its money in such a way that they earn more than what it costs them to keep money on deposit. It may accept deposits from the general public and pay them 0.05% on savings accounts. They can then lend this money out to others at market rates. The difference between the 0.05% and the market rate is the interest “spread.”

This is the bank’s profit. Banks also make money by charging fees and offering other banking services, like business checking accounts, bank certificates of deposit, and money market accounts.

The Service Delivery Process of the Business

Indeed the massive emergence and rapid development of mobile internet brought with it new opportunities for any interested entrepreneur. Bank customers in digital age are in favour of value propositions centering on rapid response, excellent customer experience, and good value to money.

All this imbibed in innovation and customer centric concept, high quality products and services are able to be offered by Internet banks. But we strongly believe the success of your Internet bank in very large proportion depends on the three imperatives with focus on four operation areas:


You have to put in place conversional top-down operation approach to put customers in the centre of your business, design products based on customers’ needs and reengineer process to fit the product requirements, and bring customer-centric into reality.

Operation and Process efficiency

You have to make sure your bank gives speedy response to customers’ changing needs through an organizational structure to realize agile decision making and swift market response.

Mobile internet is the core element to form a convenient and differentiated customer experience. Successful Internet banking models focus on five areas including customer segmentation, products and services, channel, branding and support systems.


Innovation is what differentiates your business from the traditional “full-fledged” banks. Focus on a specific customer segment to offer standardized products and services to bring cost effective advantage to full play while forging core competencies by differentiating your business from traditional retail banking business.

15. Write a Marketing Plan Packed with ideas & Strategies

Have it in mind that the marketing of your Internet bank starts with your listings. For instance, the header of each listing should have things like the colours, logo, and branding of your bank.

All service descriptions should include links to your banks home page as well as to different categories within your bank, meaning that everyone who stumbles onto one of your services is just a click away from your entire Internet bank.

We also believe you can build a robust description of your business within your profile and link to your bank or profile when engaging in discussions on any Internet bank discussion boards.

We also advise that you include your store name, address, and logo in communication with clients and other interested parties, and don’t forget to use Search Engine Optimization so that people searching the internet will find your bank. Other things to keep in mind may include;

  • Get people to your site
  • Be creative with your marketing efforts.
  • The niche is the money
  • The mighty authority rules
  • Brand yourself

16. Develop Iron-clad Competitive Strategies to Help You Win

Note that business is like a game of chess and every move counts, and to beat the competition you will require everyone’s collective effort. It’s not just a task for the marketing department or top management; it’s everyone’s responsibility.

We suggest you set up an expansive network of ATMs to bring in more income for the bank. Offer more services. Banks can do more than just bank, these days. Consider offering insurance and retirement accounts.

  • Define your brand and make your site inspiring
  • Choose a competitive advantage
  • Excite your customers
  • Offer something off the board

17. Brainstorm Possible Ways to Retain Clients & Customers

One unique way of attracting customers is by using the marketing techniques mentioned above: basically, a matter of conscious branding, meticulous communication, and deliberate Search Engine Optimization.

Reports have shown that retaining customers primarily involves a combination of honest service descriptions, fair pricing, and open communication. Other things to consider may include;

  • Choose the right tools
  • Make it simple
  • Protect their ideas and interest
  • Wow your customers
  • Follow them up
  • Provide some personalization

18. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity

Generally, the Internet industry is a highly competitive one, and while running a web-based venture can be extremely lucrative, it requires a lot of hard work and a helping hand to ensure profitability.

Offer competitive banking products and services. The banking industry is filled with uncompetitive or mediocre banks. Consumers demand lower fees and better customer service and aren’t getting it from many of the conventional, established, banks.

We suggest you find ways to innovate, lower fees and other costs, and make your banking services simple to understand and use. We strongly advice that you maintain marketing efforts within and without your Internet bank, including newsletter, social media advertising, and even networking within Internet bulletin boards and forums.

Other things to consider may include;

  • Astonishing website
  • Improved Search engine optimisation (SEO)
  • Affiliate marketing
  • Keeping your site safe
  • Social media marketing
  • Efficient Web hosting