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Is it safe to use a neobank?

A neobank isn’t an alien concept. It’s very similar to a traditional bank. They offer the same services as a normal bank–lending and bank transfers, but the only difference is that it all happens online.
Neobanks have no physical branches and no long queues.
Everything happens sans paperwork, and also, your money stays safe.
Let’s talk about neobanks.

What is a neobank?

Also known as ‘Challenger Banks’, neobanks are fintech firms that simplify and streamline online and mobile banking.
Rather than offer an array of services like traditional banks, neobanks specialise in particular products like payments, checking and savings accounts.

Neobanks are spearheading the fintech evolution to provide better solutions that are feasible, transparent, simple and fast.

But when the operation and transactions go digital, neobanks also become prone to cyber-attacks. Of course, this worries the customers and makes them re-think their choice to use a particular neobank.
So, what are neobanks doing to gain and retain their customers?

How safe is your neobank?

With the rise of contactless payments, neobanks have geared up to provide more convenient, safe and faster solutions. Although new, they offer services superior to a traditional bank to their customers.
Another advantage of neobanks is that they don’t depend on legacy systems and have a strong focus on security.
However, it is also true that neobanks might be more vulnerable to cybersecurity threats. To protect their users and tackle online fraud, neobanks have focused on innovation and employed biometrics and two-factor authentication.
Yes, identifying and defeating fraud is the biggest challenge that neobanks face. But if a customer is vigilant, then that risk drops sharply.
Many neobanks are adopting artificial intelligence and machine learning to identify scammers and fake transactions and prevent BNPL frauds and identity fraud.
According to a report by Gartner, “By 2023, 30% of banks and digital commerce businesses will have dedicated trust and safety teams to protect the integrity of all online brand/customer interactions, which is an increase from fewer than 5% today.”
Also, the Reserve Bank of India has issued certain guidelines to fortify the digital payment landscape in India. To promote a cashless economy, RBI guidelines stress setting up a robust governance structure and implementing common minimum standards of security controls for digital payment products and services.
The RBI has also said, “The guidelines are technology and platform agnostic and shall create an enhanced and enabling environment for customers to use digital payment products more safely and securely.”

Neo-banking vs traditional banking

Neobanks might be the face of today’s banking revolution, but you cannot overrule the fact that traditional banking has been around for a long time.
But things are changing fast.

With the advent of UPI and cashless payments, digital accounts are gaining more traction. Everyone wants their plates full in minutes, but there are other concerns.

Like online security and safety, which tops the discussion whenever it comes to neobanks. That’s only natural because we are all used to traditional banks.
Traditional banking cements the foundation of customer trust, and yes, it does make a difference to people because they can sleep better without thinking about their money getting robbed.
A bank’s physical presence does provide a sense of security to people who are depositing their hard-earned money. At the same time, a digital-only approach of neobanks will take some time to build momentum and gain the trust of people.
If you are worried about your money stored in a neobank, then know this: Neobanks in India partner with established traditional banks to keep your money safe.

What are the benefits of using a neobank?

Neobanks might be similar to a traditional bank, but they differ and have many benefits.
  1. As mentioned earlier, neobanks are completely digital.
  2. To use their service, you can use your mobile phone or laptop.
  3. No physical branches.
  4. Payment reminders for paying your bills on time
  5. Financial tools for customers
  6. Quick account creation
  7. No paperwork
  8. Complete digital KYC
  9. Zero registration fees
  10. Better interest rates than a traditional savings account
  11. Easy to use
  12. Better apps than traditional banks
  13. Instant access to financial transactions
Let’s end this article with a reality check.
Neobanks are secure because their bread and butter depends on their security measures. Their sole objective is to protect customers’ online identities and tackle fraud effectively.
Traditional banks still use legacy systems and are slowly catching up with neobanks. But the good news is that banks have also realised the importance of neobanking and have partnered with many fintech companies to provide better financial services.

FAQs

As per RBI guidelines, ‘Neobanks or Digital Banks’ should partner with any conventional bank to continue their operation.

According to the RBI, “The operations of so-called digital banks or neobanks’ formulation should be covered under Reserve Bank’s regulations.

Neo Banks and NBFC are two different things. Neobanks are online or virtual banks, whereas NBFC (Non-Banking Financial Company) facilitates bank-related financial services.

Yes, neobanks are digital-only banks that FinTech organizations operate. Neobanks cannot operate without a banking license in India, so they partner up with banks to facilitate financial services to their customers.