COMMENTARY: How Can Neobanks Keep Up? The Answer Lies in Their Edge in Tech

In recent times, we have witnessed an explosion in the neobanking sector, with emerging digital-only providers benefiting from rapid digitization. Now, as this sector begins to mature, companies must find a way to retain customers that may want to transition back to traditional banking companies. To do so, businesses in the sector should look toward systems that enhance the customer journey, while ensuring onboarding security is preserved and while meeting regulatory requirements.

Recent years have highlighted the resilience and flexibility of tech-first finance platforms—such as neobanks—that have been able to continue servicing customers in ways largely unaffected by global volatility. Since the start of the decade, app-download rates for neobanks have soared, with younger demographics leading the charge. This situation was even more pronounced in developing parts of the world, with a huge surge for fintech and neobanking solutions clearly visible.

In fact, research by Publicis Sapient shows that almost 20% of all neobanking companies were established in 2021 alone. This acceleration led to several companies, including Revolut, Nubank, and Chime, becoming household names. This was especially true among younger users who had limited previous experience with traditional banking solutions.

In general, the fintech movement clearly benefited from this recent push for financial digitization, with segments like embedded finance and buy now, pay later also experiencing growth. 

It’s clear why these solutions have been so in demand. For myriad reasons, people in recent times have been unable to physically visit banks in person in the way they have before, which has limited the ability of traditional financial businesses to validate customers. In turn, traditional financial solutions were unable to be offered in the ways they had been previously. Of course, the demand for these services didn’t decline during that period, which often left a lot of customers stuck. Fortunately, the advent of tech-first neobanking solutions offered a way out.

However, there’s now a concern among neobanking businesses that this demand will begin to subside as traditional banking companies become more accessible again. That means there’s now an incentive for businesses to prioritize new systems that help to improve the customer experience. By doing so, the neobanking sector can regain the competitive advantage it was beginning to develop over traditional banking companies.

The question is how this goal can be most effectively achieved.

Perhaps the most important first step for neobanking businesses is to improve customer journeys. For the uninitiated, this term refers to the process of customers signing up, onboarding, and ultimately using banking, or neobanking, services. When conducted by banks, this process is often arduous, creating an opportunity for neobanks to differentiate themselves by offering a streamlined process. However, while pursuing improvements in this area, it’s essential that onboarding procedures remain thorough.

On the face of it, these two objectives may sound conflicting. Trust me, they really aren’t. With expanded digital footprints and data-enrichment solutions, businesses can accurately decipher, at the point of signup, whether potential customers are fraudulent. Quick and effective, these systems help to dramatically reduce the time previously associated with onboarding checks. That allows neobanks to offer customers financial services in ways that are far more user-friendly and convenient, allowing them to stay ahead of traditional banks.

So, why is this important? Unfortunately, the primary answer is fraud, which continues to grow in both offline and online channels, especially the latter. If fraudsters were able to dupe onboarding processes and access neobanking services, there would be significant potential for businesses to lose out.

Whether it’s through fraudulent loan applications, or through accounts used to facilitate other forms of fraud attacks, this onboarding process must be properly safeguarded. In 2021, a total of $52 million was lost to identity fraud in the U.S. market, affecting 42 million consumers.

By adopting a tech-first approach to this challenge, neobanks can offer the same levels of security, if not better, as traditional banking institutions—and do it far more conveniently. For example, digital and social lookup solutions, with device-fingerprinting systems, can give neobanks an instant indication whether a device belongs to the person signing up. As a result, this system can instantly filter out obvious fraudsters, providing businesses with more intelligence to automate their decision-making processes.

Jimmy Fong is chief commercial officer at SEON Technologies Ltd.