Neobank Technical Infrastructure Setup: A Beginner’s Guide to Building Secure, Scalable Digital Banks

Updated on Oct 12, 2025

9 min read

A neobank is a digital-first banking institution that delivers a suite of financial products — including accounts, payments, cards, and lending — primarily through mobile and web applications. Unlike traditional banks, which often rely on physical branches, neobanks leverage cloud-native infrastructure and modern APIs to provide streamlined user experiences and faster service. This guide aims to empower fintech beginners, junior developers, technical founders, and IT professionals entering the digital banking space, detailing the essential infrastructure you need to build secure and scalable digital banks. Expect to explore both high-level concepts and practical building blocks, including architecture, core components, security measures, and operational best practices.

1. High-level Architecture Overview

A simple neobank architecture encompasses:

Clients: Mobile app, web app, partner applications
API Gateway: Central entry point for external requests
Microservices / API Layer: Accounts, payments, card services, KYC orchestration, and notifications
Core Ledger: The authoritative source for balances and transactions
Integration Layer: Connections to payment processors, card networks, KYC/AML providers, and banking rails
Data & Analytics: Event store, data warehouse, reconciliation pipelines
Security & Observability: Authentication services, logging, monitoring, and tracing

Key design principles include:

Modularity: Separate responsibilities to easily swap providers (e.g., card processors).
APIs-first: Ensure all capabilities are accessible via clear APIs, supporting mobile, partner, and internal tools.
Least Privilege: Restrict service and user access to only what’s necessary.
Observability: Implement comprehensive logging, metrics, and tracing to simplify debugging, especially during payment flows.

The API Gateway plays a vital role by managing routing, rate limiting, authentication, and request validation; thus protecting backend services from direct public exposure.

2. Core Components Explained

Understanding core banking components is crucial:

Core Ledger vs. Transaction Processing: The ledger serves as the single source of truth for balances and transactions, enforcing strict atomic and auditable changes. Example technologies include Postgres, CockroachDB, or specialized ledger engines.
Account Management & KYC: The account lifecycle includes onboarding, verification, and activation, with KYC providers facilitating document checks and identity verification.
Payments & Card Issuing: Payments connect to financial rails like ACH or SEPA through payment processors. Card issuing is commonly outsourced, requiring collaboration with BIN sponsors or Banking-as-a-Service (BaaS) providers.
Customer-facing Apps & APIs: REST/GraphQL APIs should expose secure methods to mobile/web clients while keeping sensitive operations server-side.

Build vs. Buy for Core Banking

Option	Pros	Cons
Build (in-house ledger)	Full control, custom features	High complexity, longer time-to-market
Buy (core/white-label)	Faster launch, easier operations	Less control, ongoing costs

For MVPs, it is advisable to buy or partner for card issuing and use a minimal in-house ledger that can be upgraded later.

3. Infrastructure Foundations (Cloud, Compute, and Networking)

Cloud Provider Selection

Major cloud providers (AWS, GCP, Azure) offer significant benefits for financial services, so review their financial services guidelines while designing architectures.

Compute Models: VMs vs Containers vs Serverless

VMs: Familiar but require heavier management.
Containers: Ideal for microservices, offering portability and efficient resource usage.
Serverless: Great for event-driven or low-maintenance jobs, although limited for ongoing services requiring consistent latency guarantees.

For many neobanks, containers paired with Kubernetes (using managed services like EKS, GKE, or AKS) provide an effective balance for scaling and portability.

Networking and Security

Utilize VPCs and subnets to separate public-facing components from private backends.
Employ private endpoints for managed services; avoid public database exposure.
Secure connectivity options such as VPNs or Direct Connect for partners.
Use WAF and API Gateway protections for public APIs.

Storage Choices

Relational databases (Postgres, CockroachDB) are essential for ledger and transactional data to maintain ACID compliance.
Use NoSQL for session data or scalable caches, and object storage for backups.

Ensure encryption at rest and in transit, utilizing KMS for key management and performing regular key rotations.

4. Identity, Authentication & Authorization

User Authentication

Implement OAuth 2.0 and OpenID Connect for secure customer authentication. Refer to RFC 6749 for details.
Use libraries and providers like Auth0 or Okta to expedite secure implementation.

Service-to-Service Authentication

Prefer mTLS or short-lived JWTs for microservices communication, rotating signing keys and managing token TTLs.

Access Control

Adopt RBAC for application features and cloud IAM for infrastructure, applying the least privilege principle.

MFA and Session Management

Enforce Multi-Factor Authentication for sensitive actions to enhance security.

Refer to this internal LDAP integration guide for enterprise systems.

Example: Validating an OAuth token (pseudo-code)

GET /accounts/123
Authorization: Bearer <access_token>

# Backend pseudo-flow
1. Validate JWT signature and expiration.
2. Check token scopes (e.g., accounts:read).
3. Enforce RBAC policies for the user.

5. Security & Compliance (PCI, Data Privacy, Auditing)

PCI DSS and Card Data

To protect cardholder data as per PCI DSS standards, avoid storing sensitive cardholder information directly; use tokenization from card providers like Stripe or Marqeta instead.

Data Protection Laws

Ensure compliance with GDPR, CCPA, and similar regulations by minimizing PII collection and supporting data subject requests.

Secure Coding and Secrets Management

Follow the OWASP Top 10 for application security, and use secrets management tools (AWS Secrets Manager or HashiCorp Vault).

Audit Logging and Forensic Readiness

Maintain immutable audit logs and monitor for suspicious behaviors, implementing alerts for unusual activity patterns.

Third-party Risk Management

Vet vendors for compliance and security posture, requiring appropriate documentation such as SOC 2 and ISO27001.

For MVPs, delegate card and KYC data management to established vendors. For production, formalize security policies and conduct regular scans and audits.

6. Integrations & APIs

Open APIs & Developer Portal

Provide comprehensive API documentation and sandbox environments for partner integrations.

Third-party Integrations

Integrate with payment processors, KYC providers, and other financial systems while tracking SLAs and building retry strategies for external calls.

API Best Practices

Utilize versioned endpoints (e.g., /v1/payments) and deprecation policies.
Leverage API Gateway for rate limiting and routing while ensuring endpoint idempotency.
Implement robust webhook systems for event notification with retries and authenticity signatures.

Example idempotent payment API (pseudo-request)

POST /v1/payments
Content-Type: application/json
Idempotency-Key: 0a2b3c
{
  "from_account_id": "acct_123",
  "to": {"type": "external_bank", "routing_number": "..."},
  "amount": 1000,
  "currency": "USD"
}

7. DevOps, CI/CD & Testing

Infrastructure as Code (IaC)

Use Terraform or CloudFormation to define infrastructure; manage templates within version control.

CI/CD Pipelines

Automate builds, execute tests (unit/integration), and perform security scans (SAST/DAST), using canary or blue/green rollouts as deployment strategies.

Testing

Conduct unit tests for business logic and integration tests for external APIs.
Implement chaos testing to validate resilience under failure.

Maintain separate environments for development, staging, and production.

For automation resources, refer to our guide on Ansible configuration.

Example minimal Terraform snippet (AWS provider) to create an S3 bucket:

resource "aws_s3_bucket" "logs" {
  bucket = "neobank-logs-prod"
  acl    = "private"
  server_side_encryption_configuration {
    rule {
      apply_server_side_encryption_by_default {
        sse_algorithm = "aws:kms"
      }
    }
  }
}

8. Observability, Monitoring & Incident Response

Logging, Metrics, Tracing

Centralize logs using ELK or cloud logging solutions. Collect metrics with Prometheus, visualizing with Grafana and leveraging distributed tracing for service communication.

SLA / SLO / SLI

Define measurable SLIs (e.g., payment success rates, API latencies), establish SLOs, and derive alerts based on SLO burn rates.

Incident Management

Maintain operational runbooks, implement on-call rotations, and document outcomes from blameless postmortems.

9. Resilience, Backup & Disaster Recovery

Backup Strategy

Conduct regular database snapshots and test restore procedures; ensure cross-region replication for critical data.

RPO/RTO

Define Recovery Point Objective and Recovery Time Objective to guide your backups and failover protocols.

Active-Active vs. Active-Passive

Active-active setups increase availability but demand diligent conflict resolution, whereas multi-AZ active-passive configurations allow for practical failovers.

Check out our internal guide for managing file server storage and restore drills.

10. Cost Considerations & MVP Priorities

Where to Invest Early

Prioritize security features, core ledger development, and KYC integrations to lay a solid foundation for your neobank.

Managed Services vs. In-house

Utilizing managed services can expedite your market entry, while in-house solutions are often more expensive and complex.

Cloud Cost Optimization

Establish budgets, alerts, and practices for rightsizing and reserved instances, regularly reviewing unused resources for cost control.

Focus your MVP on minimizing compliance scope and security risk without over-utilizing your budget.

11. Next Steps, Learning Resources & Checklist

Starter MVP Checklist

Choose a cloud provider and configure a secure account structure.
Determine the core ledger approach (prototype or white-label solution).
Integrate with KYC and card processor sandboxes.
Create a minimal API with OAuth 2.0.
Initiate logging, basic monitoring, and daily reconciliation.

Suggested First Projects

Implement KYC sandbox integration and manage webhook flows.
Develop a tokenized payment flow leveraging a card issuer sandbox.
Prototype a ledger that supports atomic debit and credit entries.

12. Appendix: Glossary & FAQs

Glossary

Ledger: An authoritative record of account transactions.
Tokenization: Replacing sensitive data with non-sensitive tokens.
BIN Sponsorship: Requirement to issue cards by partnering with a bank.
PCI: Payment Card Industry Data Security Standard.
OAuth: Framework for delegating access.

FAQs

Do I need a bank license? Not necessarily; many opt to partner with licensed banks or use BaaS providers for managing deposits and regulated services.
Should I build or buy my core banking solution? For quick market entry, it’s advisable to buy or partner for core banking and card issuing; consider building for unique requirements with available resources.

References

PCI Security Standards Council — PCI DSS Documentation
OAuth 2.0 (RFC 6749) — IETF
Kubernetes Documentation — Production Environment Considerations
AWS for Financial Services — Best Practices and Solutions

Conclusion

Start small: focus on your MVP by minimizing compliance scope using trusted partners and a reliable ledger prototype. As you scale, enhance observability, formalize security measures, and develop disaster recovery strategies. With a modular, API-first approach and the right managed services, you can iterate efficiently while ensuring the safety of customer funds.