Enhancing Security in Neobanking’s Tech Renaissances

Neobanking's Tech Renaissances

Neobanks are online-only banks offering a range of services to make banking more convenient and accessible. Traditional banks try to compete by adding advanced digital tools to their processes.

All this innovation benefits customers as they can create accounts, transfer money, troubleshoot, and more straight from their computer or phone. But there are risks to consider, too.

Since everything happens online and through digital apps and devices, cybersecurity is a priority. The good news is that the relationship between neobanking and security is symbiotic, improving each other’s systems and ability to keep hackers and fraudsters at bay.

How Neobanking Affects Traditional Financial Systems

As of 2022, neobanks had a market size value of $66.82 billion, and they reached $96.14 billion in 2023, according to Grand View Research. This is because of the rapid launch of more and more handy neobanking platforms such as Fi, an instant savings account app for working millennials, created by Google Pay developers in partnership with the Federal Bank.

Companies’ reliance on neobanking solutions, especially for bulk payouts and better customer service, is another contributing factor. The report above found that over 65% of the market’s revenue share in 2022 was in business accounts, resulting in many practical applications.

Fedo HSA, for example, is a health savings platform combining fintech and healthcare features that help customers manage their spending, courtesy of Open’s neobanking technology.

As 276 neobanks and counting push the boundaries of financial management just to stay ahead of the game, Tillo highlights advancements that have reshaped user experiences the most and streamlined even traditional banking. They include digital wallets and payments, artificial intelligence and machine learning, open banking and API integrations, cryptocurrencies and blockchain technology, and the sheer satisfaction of super personalized banking.

Why Security Is Important to Technological Innovation in Banking

The main downside of bigger and better technology is that it goes hand in hand with advanced criminals. They keep track of and use every new app or technique that benefits their schemes.

So, cybersecurity is essential to banking because it protects customer’s funds and confidentiality, as well as the organization’s reputation and integrity, averting hefty penalties at the same time. It’s daunting that ransomware scams cost around $1 billion per year, but it’s a pattern that can be overturned.

There’s a lot of innovation in cybersecurity, especially in the banking industry. When it comes to fraud detection alone—its market value expected to reach $38.2 billion by 2025—companies and individuals have access to at least 12 reliable high-tech tools, SEON explains. Their jobs include flagging up and blocking stolen or false IDs, employing risk rules and scoring, and conducting device fingerprinting and social media lookups, all to better profile a neobank’s users.

What this shows is that bad actors can fake or hide their identity and intentions while sneaking or forcing their way into your system. They’ll use everything from phishing to hacking in order to steal or launder money, exploit features and sensitive information, and find new victims. But you can combat them with the right combination of automated security software and human expertise.

How Neobanking Enhances Security

Neobanks and the technology behind them are an impressive development but also an opportunity. By introducing new ways to manage your money completely online, they also brought new digital protection strategies to the table. Here are the key advantages of merging security with high-tech banking.

1. AI and Machine Learning for Security and Customer Service

As business consultant Ovik Mkrtchyan confirms about the use of AI in the banking sector, it’s a very effective tool in safeguarding customers and supporting their every need without having to send them to a physical branch of their bank.

For example, while AI/ML biometrics counter fraudulent sign-ins, advanced data collection and processing compiles in-depth profiles for customers and workers. The same system can then analyze the data to verify identities or just assist people via chatbots.

2. Data-Driven Security

A traditional bank gathers a lot of data and a neobank even more so. Being able to store, process, and utilize all that information effectively is key to any financial service, something that software can already help with.

But how does this affect your banking security? By focusing on data, the neobank can look at a user’s sign-in details or activity on a minute scale, compare it to their usual behavior on the platform, and spot inconsistencies that could suggest fraud, an account takeover, money laundering, or other criminal activity.

3. Complex Security Checks

The allure of digital banking is growing. Its ease of use and efficiency were its main winning points for 45% of UK consumers in 2021, Attest reports. However, those who resisted the trend, mainly people aged 56 or over, did so partly because they found traditional banks better regulated (22%), they were worried about their personal data’s safety (25%), or they just didn’t trust neobanks (31%).

Today, the best providers around employ sophisticated security measures with AI/ML technology and comply with AML, KYC, and other regulations. They make the most of identity verification (IDV) checks, risk assessments, transaction monitoring, data analysis, and more to detect and prevent criminal activity in their systems.

Neobanks Can Develop Better Security Than Traditional Banks

A brick-and-mortar bank has to manage and pay for a great many things, whereas a bank that functions solely online has fewer obligations and expenses, not to mention a great opportunity to dedicate itself to what matters most: the safety of its business and customers.

With the security solutions already in place and a constant supply of enhancements, neobanking is proving the hassle of traditional banking a thing of the past. There’s now little reason why you can’t manage your finances with the click of a button.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.