The recent years has witnessed a major drift in the banking and financial industry with digitization and the ever growing use of the mobile technology. With the customers are also embracing the digital means of financial services by moving away from the cash handed out physically to the digital currency. They are comfortable in digital transactions than ever before. But the digitization in the Banking and Financial Industry has triggered huge cyber security challenges for Financial Institutes and Service Providers. It has opened up entry points for cybercriminals to stage attacks and get illegal access to critical data. Today, with digitization and technological advancements, the banking industry has grown out to be more vulnerable than ever before. Cyber security has now become a major point of focus for the Banking and Financial industries globally, especially for the financial players like the Neobanks which runs entirely on a digital banking model, cyber security should be their topmost priority. Before that let us understand what Neobanking is, how it operates and what does the future look like with these Neobanks emerging.
What is Neobanking? They are the virtual banking service providers operating digitally without having any physical infrastructure like their traditional counterparts, their offerings are limited to internet only services. Financial services that focuses on providing its tech-savvy customers the convenience of their cutting edge and technology-driven digital banking services. Neobank offerings are slightly similar to those of traditional banks but limited to just opening saving accounts, payment, and money transfer services, loans, and budgeting, to name a few. Eliminating physical infrastructure and automating banking processes, the neo banks are very different from the traditional banks.
Neobanking and Traditional Banking differences as are follows:
Neobanks run on a digital platform and have no physical branch. Banking processes in Neobanks are easy, quick, and automated. Neo banks’ customer support relies on a combination of chat bots and AI providing flexible, virtual, online support.
Service offerings include-
· Opening accounts
· Payment and money transfer services
Traditional banks have physical banking service branches for operating their business. Banking processes in a traditional bank are usually lengthy, tedious, and involves partial manual and automated task. Traditional banking relies on telephonic or in-person support.
Service offerings include-
· Opening accounts
. Payment and money transfer services
· Insurance services
· Wealth Management
· Merchant services
· Mobile banking services
Basically, the neobanks help in overcoming the traditional banking challenges with ease and convenience of availing the services. They also pose a huge security challenges too. Here are some of them- Cybersecurity Challenges faced by Neobanks.
Inadequate budget- Cybersecurity requires huge amounts of investment. Neobanks are comparatively smaller than the traditional banks and often lack the budget for having a full-time cybersecurity team for monitoring all the activities.
Third-party dependency– Neobanks work digitally and are heavily dependent on third-party services to serve their customers. So, with the dependency on the third-party, the risk exposure is significant
Malware- Since the entire banking process is online, a lot of sensitive data passes through the network and digital devices. Networks and devices should be appropriately secured to prevent any incidents of a breach. In case a device connected with a network is compromised with malware, it may pose a huge threat to your sensitive banking data and may result in compromised cyber security.
Spoofing- Spoofing is the latest form of cyber threat wherein the cybercriminals will impersonate the banking website’s URL with a website that is similar to the original one and functions the same way. It is a common practice adopted by most attackers to steal sensitive data. With Neobanks completely operating online the risk exposure to such scams are high.
Phishing- Phishing is an attempt made by a hacker to get access to sensitive information such as credit card details by disguising as a trustworthy entity in an electronic communication.
Compliance- Almost all of the Neo banks would be required to comply with standards such as PCI DSS. This would be in addition to the local regulatory compliance such as those concerned with Privacy.