As we continue to understand what this digital era has in store, many members of the public are starting to question whether a digital bank is one they can have faith in, or if they should stick to a traditional high street bank.
Debunking some of the biggest myths surrounding neobanks is Serge Beck, CEO and Founder of Optherium, a global fintech company developing blockchain solutions to reform defective functions within financial and security infrastructure. Beck is a serial entrepreneur, venture capitalist, IT specialist, and blockchain ambassador, with over ten years of experience on Wall Street and over ten years of experience as a venture capitalist.
Much has been said and written about the many security concerns associated with neobanks due to the potential for cybercriminal activity, given their fully digital nature. That’s not to say those concerns expressed, such as the potential for malware, spoofing, and phishing, aren’t legitimate. Established banks still have the advantage over traditional banks regarding digital trust, with data security cited in some surveys as to why many have yet to switch to neobanks.
The need for digital banking keeps increasing, with 82 per cent of consumers relying on digital means to conduct financial transactions. Additionally, more than 60 per cent of consumers prefer digital-only financial institutions to offer debit card services. However, misconceptions about neobank security must be addressed for consumers to fully trust digital-only banking. Traditional banks raise concerns with their tight financial regulations and government monitoring. Plus, they rely on extensive legacy systems. By contrast, neobanks don’t rely on legacy systems and have airtight security measures to house all financial products in one space. Here are some of the notable misconceptions about neobank security and an attempt to clear up those misconceptions.
Money Deposited in a Neobank Account Isn’t Fully Secure
Admittedly, cybercriminals are getting savvier with their hacking attempts, resorting to creating fake pages that mirror the URLs or real banks, otherwise known as spoofing. And, cybercriminals use technology just as innovative as banking technology to try and steal sensitive information, including credit/debit card information.
While the purveying notion is that traditional bank security is tighter than neobank security, neobanks offer more security because they don’t use traditional, centralised banking models. Traditional banks use outdated centralised data models that expose consumers to security risks. Neobanks, by contrast, use decentralised ledger systems to secure consumer finances. Neobanks use a decentralised recording system that keeps transaction records and stores user data, improving their security capabilities. Neobanks combined with traditional banking systems, have used partnership models that keep consumer funds housed in an underlying bank account, with insurance provided as an additional security buffer.
Additionally, concerns have been expressed regarding how easy it is to access money. Because neobanks don’t have physical branches, consumers and potential investors alike have concerns about retrieving money in emergencies. However, neobanks usually provide their consumers with full access to ATM withdrawals whenever necessary. Consumers can even transfer money from neobank accounts to traditional ones without hassle.
Neobanks Struggle With Data Privacy and Security
There will always be some data privacy, and security concerns with online banking as even the tightest of security measures can be breached by some cybercriminals. One major advantage neobanks have over traditional banking institutions is that they don’t rely on old legacy systems for functionality and security purposes.
While designing their platforms, security is at the forefront, with neobanks using two-factor authentication for all banking processes and data localisation norms. Neobanks also use advanced security measures like single-use virtual cards, tokenised online transactions, and MCC blocks. Some neobanks provide live transaction updates and detailed transaction histories, also providing PIN and ATM resetting features.
Data encryption is so defined and strong within neobanks that no one can understand the data other than you and your bank. With neobanks collaborating alongside traditional banks, consumer finances will be fully secure even if a neobank involved in such a collaboration gets into trouble.
The technology and infrastructure in place are comprehensive, making banking a safe experience for users and reassuring investors and traditional banks looking to collaborate with neobanks. They offer various security measures that traditional banks should consider as well.
Neobanks are Complex
Another myth is that neobanks are hard to use, especially if you’re not the tech-savvy type. While fully digital banking services may seem intimidating for people who don’t specialise in online banking, neobanks provide streamlined banking services, educating consumers on how to use their financial products and improve their financial management. By providing extensive education, first-time users have a better idea of how neobank transactions work and are shown how their finances will be protected while using neobanking services.
All business insights are broken down into insights that are easy for consumers to understand. Neobank accounts are highly personalised, and neobanks operate with an understanding that consumer actions must be dynamic at all times. Neobanks have a strong understanding of consumer behavior, making user-interface upgrades whenever possible to improve consumer experiences. Because of the cloud-based blockchain technology that neobanks use, they can organise their operations to guarantee additional consumer security and address consumer concerns quickly.
Understanding the misconceptions associated with neobank security and seeing the lengths they’re willing to protect everyone who uses their services make them more attractive propositions for the future of digital banking.