How to Choose a Secure Neobank: All You Need to Know
As of 2022, there are more than 250 neobanks in the world. Neobanks boast an advanced level of security with the help of blockchain technology.
In the past decade, a new demand came forward; the demand of having an innovative set of banking features comfortably sitting in your pocket. Fintech has become a volatile environment with disruptive innovations and solutions that combine several products into one single application.
As of 2022, there are more than 250 neobanks in the world, which, compared to the 45,000+ physical brick-and-mortar banks, isn’t much. But, 250 is still not a small number to choose from. Neobanks boast an advanced level of security with the help of blockchain technology, AI, and machine learning solutions. But, how can you select the most secure neobank that operates in your region?
What Makes Neobanks Secure
On a macro scale, the thing that makes some neobanks more secure than traditional local brick-and-mortar banks is the fact that they don’t need to spend their cash flow on physical location, upfront costs, rent and office space.
With all the capital they gain, neobanks invest in innovative solutions and security. Of course, that doesn’t mean that the most advanced and globally recognized neobanks aren’t regulated by financial entities and are always compliant with the highest security standards. These standards include a periodic assessment of vulnerability, risk and testing against potential attacks and leaks. Neobanks test their blockchain secured networks on a monthly or weekly basis to ensure that all endpoints are protected. Some of the more innovative neo banks invest in machine learning algorithms that parse their own security systems, looking for flaws on a daily basis. If there is a vulnerability in the blockchain’s node network, the algorithm finds it and alerts the team responsible. Many neobanks operate not on their own but in partnership with traditional banks, which allows for additional insurance of funds like a brick-and-mortar bank would provide in case of insolvency issues.
A two-factor authenticator can come in a variety of forms, the most common of which would send a code via SMS to your mobile device. This means for each transaction you must have access to both your online banking and cell phone. This provides an extra layer of security, aside from passwords and secret questions. Yes, many brick-and-mortar banks have digital apps that include 2-factor authentication for credit and debit card purchases, but to be honest, there are flaws in some of their systems. For example, there are numerous banks that require 2FA verification for larger debit card purchases or after a certain card limit has been reached but don’t require 2FA for bank wire transfers initiated online. The main reason for this is saving money. Since the majority of the frauds happen through debit card fraud and not through social engineering, this doesn’t mean that a similar aspect should be neglected.
What Neo Banks Regulators to Trust?
While neobanks operate with a very different business model than traditional banks, the same regulators apply to all other financial institutions. And, these licenses are pretty hard to get.
The most common licenses and regulations you should look for when opening a digital bank account are:
- AFS license (Australian Financial Services). This license allows the neobank to operate on Australian soil and is issued by the ASIC. It entails a lot, namely risk management, staff training, compliance procedures, and more.
- ADI license (Authorized Deposit-Taking Institution). APRA is the institution that gives a financial institution the ADI. This license allows the organization to conduct banking processes like deposits, transfers and withdrawals.
- FCS (Financial Claims Scheme). The FCS allows funds to be guaranteed up to a certain amount to be backed up by the government in case of insolvency issues.
Of course, depending on the region you are in and the region the neobank operates in, there are different licenses that they could be using, and that could be issued by different financial regulators like the FCA, ASIC, FDIC, SEC, and many others.
Social Proof, Reviews & Word of Mouth
If you’ve already done your research, you’ve checked the regulators and the most common security practices of a neobank, it’s time to ask friends and start reading on forums to get the opinions of people.
It’s more important to know if any of your friends use digital banking applications and ask for their opinions. Read reviews, check trust-pilot scores, and create an educated opinion for yourself. Some of your acquaintances might have used one neobank and switched to another for some reasons that might be important to you. Ask around.
With 250 neobanks and counting, choosing a bank that fits your needs, operates in your region, and is secure. Check the regulations of the institutions you are considering and ask friends. Compare everything that is important to you, and don’t be afraid to try things out with small amounts. Remember, with most neobanks, there is no minimum deposit required.
Author: Serge Beck
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