How Do Neobanks Protect Our Money?
In just a few years, neobanks have practically surpassed traditional brick-and-mortar banks in terms of offering flexible products and innovative services. They’ve made the lives of small and medium enterprises and retail users much more effortless with features like budget analysis, payment scheduling, in-app accounting, vaults, and more.
However, can neobanks offer the same level of protection as traditional brick-and-mortar banking institutions? This is a question many users ask before signing up, and due to marketing purposes and transparency, neobanks should know how to answer correctly.
How do Neobanks Tackle The Most Common Banking Frauds?
In 2021, more than 45 percent of total banking losses in the UK were due to payment card fraud. Over 38 percent are authorized push payments, and only 16 percent of fraud cases are caused by remote banking.
The turnover ratio in banking fraud continues to grow each year. Both neobanks and traditional banks are stepping up and increasing their security standards on a daily basis.
How do Neobanks Protect Payment Cards Online?
In the online space, a white label digital bank would allow its users to pay with a one-time virtual card instead of utilizing their debit card. Although this seems like a simple feature, most traditional banks don’t quite offer it yet. This preventive feature absolutely eliminates the risk of your data being stored by unwanted third-party software, a virus, or a script.
Traditional banks offer 2FA (Two-factor authentication) for online purchases. This is something all neobanks also have. Furthermore, there are machine learning-based predictive spending models that would alert both you and a security team in the neobank if you’re purchasing something out of your ordinary daily choices.
With white label digital banking, you can also pause or completely disable online shopping if you don’t use it often in order to increase your level of security.
How do Neobanks Protect Your Physical Payment Cards?
It’s one thing to protect a card in the online world and an entirely different thing to protect it from theft and usage by someone else, as well as social engineering. A great example here is what Revolut does, namely tracking your physical debit card’s location. If it’s far from your phone, it will refuse to pay in any way. That, of course, is possible only if you allow that feature through the online application. In a good digital banking platform, with a few clicks, your latest payments can be reverted.
Predictive and location spending machine learning algorithms that trigger certain alerts come in handy regarding physical payment card fraud even more. Imagine you’ve been on a business trip or a tourist visit to another country, and one month after, you get an alert that you are buying something in that country while you’re back home.
The algorithm would quickly determine the discrepancy and block the fraudulent purchase or alert you and the responsible security team of the white label neo bank you’re using.
Disabling Certain Categories of Purchase
A very comfortable feature about neobanks and card spending is that some of them allow the user to modify what they can purchase and limit certain types of purchases.
You can disable your card from paying for groceries, plane tickets, hotel expenses, and even fuel. Each transaction has a vendor code and a transaction code, and the bank knows which ones to block and which ones to let through, depending on the user’s preferences.
Automatic Limits
There are automatic limits regarding spending per week both in terms of withdrawal, contactless payments, and online spending. You can reset these by authenticating yourself on your mobile app with either biometrics or your phone’s pin code or password pattern.
These limits would, of course, prevent a fraudster from stealing too much from your card, in case they’ve gotten this far.
The virtual cards of many neobanks also support NFC (near-field communication) payments. If you’ve seen people paying with their watches instead of a physical debit card, that was an NFC payment.
Are Your Funds Secure From Default In Neobanks?
As you may know, in case a bank goes bankrupt, your deposited funds are securely insured up to an extent. The insurance limit reaches up to $250,000 in the US, provided by the FDIC (Federal Deposit Insurance Corporation).
Depending on in which country the neobank has a banking license or partner, the insured amount of funds per deposit would vary. For example, a while back, Revolut applied for FSCS (Financial Services Compensation Scheme) in the UK, but this is still on hold. For that reason, Revolut decided to obtain a banking license in Lithuania (European Union), and currently, the funds of the users are being protected by the National Bank of Lithuania.
If you are a citizen of the United States, you can always check if your bank or neobank offers FDIC insurance by following this link to FDIC’s official website.
Hacker Attacks
According to the Ponemon Institute, more than 110 million US citizens have had some personal information exposed by hackers in the past year. Big banks like JP Morgan Chase confirm that they’re facing constant hacker attacks almost on a daily basis.
The reality is that the majority of hacking that’s successful, either on your device or in the form of social engineering, doesn’t fool the security of the bank but compromises your device or payment card. For example, a successful hacking attempt would entail the installation of software that runs in the background of your mobile device and records what you are doing on your screen, exposing financial information like credit/debit card numbers and security codes.
A white label digital bank’s mobile app would ask permission to scan your device and would blur all account numbers, IBANs, security codes, and passwords while anything is recording or viewing your screen. You might not see this visually, but this is an extra-step security measure that a lot of neobanks apply.
Since the majority of successful frauds are due to the user’s negligence and not the bank’s, both traditional banks and neobanks have come up with advice to share with their customers.
How to Protect Your Bank Account As a User
Regardless of whether you are a neobank user or your funds reside within a traditional bank, your funds can never be too safe, which in some part depends on your spending habits. For example, no matter how secure your bank is, if you are logging into your mobile banking app through publicly accessible wi-fi networks, you are exposing your data to anyone linked to that network.
For that reason, be advised to login into your banking apps only from secured networks, at home, or through 4 or 5G networks. You can also encrypt the data on your device with third-party software. This is something some neobanks do with the help of blockchain technology.
Avoid Suspicious ATMs
Suspicious locations in certain areas should be avoided for multiple reasons. Not only are dim ATM locations often the place for physical theft and pose the danger of being mugged while withdrawing, but they can also be compromised with the help of third-party tools and gadgets.
Always stick to withdrawing from ATMs in public locations where the lighting is good and there are plenty of people around.
Restaurants
There are multiple reports in which restaurant employees would skim cards when you are paying with a payment card, and they would steal your information. Be advised to pay with your neobank cards in a restaurant, as opposed to your brick-and-mortar issued ones.
The reason is that you will directly be notified in your app in real-time if someone tries to charge you, and you can instantly block the card from your phone at any time and revert the transactions.
Shady Internet Links And Social Engineering
Malicious internet links have been there since the beginning of the internet. Always pay attention to whether you know the sender of a link and whether they are not impersonating someone you know.
Moreover, be aware of web links that entice you to sign up anywhere, and offer anything enticing for free. Also, it’s good to know that sometimes people using social engineering pretend to be the support agents of your used bank.
Have in mind that support agents of any white label digital bank never ask their clients for their passwords or payment info.
Final Words
There are many ways to protect your privacy, passwords, and personal information, including payment methods. But one of the most important decisions to make is which bank to trust with your savings. Most neobanks are as secure as most traditional banking institutions. They increase their security standards on a daily basis with the help of machine learning algorithms that constantly simulate hacker attacks and adapt to them.
Blockchain encryption, biometrics, 2FA, and data vaults are just some of the security features that neobanks can offer. Each provider would offer different approaches to deal with cyber-attacks and prevent fraud. Before signing up with a neobank, make sure to inform yourself as to their security features and read customer reviews to get a sense of people’s experiences.
Author: Serge Beck
