The pandemic has caused a huge shift in the way we bank, with traditional high street banks have been dealt a significant blow as neobanks have grown in popularity. However, where neobanks continue to trail high street banks is in terms of trust. Having not been established for anywhere near as long, customers are not sure they can trust neobanks yet, but improving security and accessibility will be a step in the right direction to building it up.
Serge 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. Beck is the CEO and Founder of Optherium, a global fintech company developing blockchain solutions to reform defective functions within financial and security infrastructure.
Beck spoke to The Fintech Times to explain how accessibility and security must always be considered together as focusing solely on one, hinders the other making it hard to develop a customer base:
The banking industry is experiencing immense changes in market share, consumer behaviour, and operational structure. The Neobanking movement is firmly established and is providing startups, large companies, and even established financial services players with a new revenue stream. And this movement is occurring in lockstep with changes in consumer sentiment towards how they store, move, and access their funds.
In a recent consumer survey, “The Brewing Battle for Where We Will Bank,” experts find that there is strong consumer interest in adopting financial services from non-traditional banks. From Neobank platforms to hybrid digital services, consumers are increasingly ready to conduct their business online. This extends into the broader market, where brand-loyal customers consider conducting banking transactions directly with their business of choice. Similarly, enterprise employees are also showing interest in holding savings and checking accounts with their employers.
We’re in the midst of a chaotic shift within the financial services space, and consumers choose the winner based on specific preferences and concerns.
Consumer Concerns and Preferences in the New Financial Services Landscape
As is the case with any disruptive technology, consumers need some time to adjust to changes. The pandemic has certainly gotten people used to the practice of performing essential tasks online, be it grocery shopping, doctor’s appointments, or banking. With all this digital activity, two major needs are the top priority for the public: security and ease of use.
The New Digital Standard: Secure and Convenient
The neobanking movement, like it or not, is creating lasting change across many industries. Customers are now expecting their current enterprise relationships to accommodate the interconnected nature of business in the online world, which inevitably includes banking services. For instance, the aforementioned joint survey found that 64% of consumers who visit physical branches do so out of data security concerns. Digital banking providers need to take concerted action to merge the desire for convenience with the need for security.
Unfortunately, this is no easy feat when working from the traditional service model.
Creating a comprehensive neobanking service branch requires that enterprises have the technical ability, regulatory knowledge, and staffing capacity to create and run a fully-fledged banking service. In this case, traditional institutions may have a leg up on the new neobanking competitors and outside enterprises. However, the presence of whitelabel neobanking platforms means that new entrants to the space can deploy comprehensive platforms that take into account all necessary financial regulations and security measures.
As the tech industry has grown, so too have concerns regarding privacy, data security, and control over personal information. From large data breaches involving social platforms like Facebook and LinkedIn to cyberattacks on financial service providers, consumers have always been concerned regarding personal information security. Cloud service infrastructure, used as the foundation of these online services, is a security concern for many modern businesses due to the number of access points available to intruders compared to traditional servers.
In the banking industry, for obvious reasons, security is an elevated priority. That is why neobanks and FinTech service providers are taking concrete steps to fill in the gaps that occur during rapid technological development. Here are some of the key tools neobank service providers can use to create a safe online banking environment:
- Decentralised Ledger Systems: Retail banking systems based on the old centralised data model put consumer information at more risk of being exposed. New neobanking services now provide a decentralised recording system for transaction records and user data storage that exponentially increases security efficacy.
- RegTech: A blossoming field in its own right, RegTech (Regulatory Technology) is also becoming a staple within the digital banking toolkit. These systems ensure that consumers, DevOps teams, and administrators act in compliance with company protocols and national finance laws.
- Enhanced Data Storage: In addition to decentralising transaction records, high-end neobank platforms also offer decentralised user data. These systems are in line with the EU’s General Data Protection Regulation (GDPR) and the Payment Services Directive (PSD2), providing some of the highest security measures on the market from a data storage perspective.
- Biometric Security Measures: There’s the organisation on one side of the security token; on the other, there’s user access. With advancements in PC and smartphone technology, many consumers now have the ability to administer biometric security measures in their very hands. By leveraging existing technologies like facial and fingerprint recognition and incorporating them into neobanking best practices, enterprises can ensure that the next generation of digital bankers are as secure as possible.
Accessibility is the Yin to security’s Yang in terms of comprehensive digital banking. Traditionally, the latter has made it more difficult for financial institutions to improve the former — people really value security. Still, they don’t want to be overly impeded by added measures and high costs. This is a key reason behind the rise of neobanking.
Software systems with high interoperability provide the convenience of accessible banking services while incorporating minimal security measures on the front end. Biometrics are easier to enter than a password and 2FA, and they don’t have any additional cognitive load.
Digital banking, in general, is also advantageous for many reasons. It frees up consumers to conduct their financial transactions from the comfort of the office, home, and transit. In many cases, it also reduces the fees that customers pay and gives them 24/7 access to their funds.
That Millenial and Gen Z consumers are driving the movement towards next-gen digital banking is undeniable. And as the neobanking industry continues to grow, the wearier consumer segments are becoming interested as well. With the dual pillars of enhanced security and high convenience, large employers, nonbank enterprises, and savvy startups can leverage these technologies to provide a higher quality financial service that caters directly to consumer needs.