UNDERSTANDING THE CYBERSECURITY CHALLENGES FACED BY NEOBANKS

Narendra Sahoo, Founder and Director of VISTA InfoSec

 

Introduction

In recent years we have witnessed a major drift in the banking and financial industry with digitization and growing use of mobile technology. Customers are also embracing the digital means of financial services by moving away from physical cash to digital currency. Customers today seem more comfortable transacting digitally than ever before. But the digitization in the Banking and Financial Industry has also triggered huge cybersecurity challenges for Financial Institutes and Service Providers. It has opened up entry points for cybercriminals to stage attacks and get illegal access to critical data. Today, with digitization and technological advancements, the banking industry has grown out to be more vulnerable than ever before.

Facing numerous incidents of breach and theft every year, cybersecurity now becomes a major point of focus for the Banking and Financial industries globally. Especially, for the emerging new financial players like the Neobanks which runs entirely on a digital banking model, cybersecurity should be their topmost priority. Focusing on this area, we have today written an article listing out some of the potential cybersecurity challenges faced by Neobanks and the future that holds for these emerging financial players. But before that let us first understand what Neobanking is and how exactly does it operate in the industry? This will give us a better perspective of its operational challenges and risk exposure that they face in their business.

 

What is Neobanking? 

Neobanks are virtual banking service providers operating digitally without having any physical infrastructure like their traditional counterparts. Their offerings are limited to internet-only financial services that focuses on providing its tech-savvy customers the convenience of their cutting edge and technology-driven digital banking services. Neobank offerings are slightly similar to those of traditional banks but limited to just opening saving accounts, payment, and money transfer services, loans, and budgeting, to name a few. The banking structure and business model of Neobanks are different from the traditional ones, eliminating physical infrastructure and automating banking processes. Given below are some of the key difference that will help you understand the concept of Neobanking a little better-

Neobanking Traditional Banking
Neobanks run on a digital platform and have no physical branch. Traditional banks have physical banking service branches for operating their business.
Banking processes in Neobanks are easy, quick, and automated. Banking processes in a traditional bank are usually lengthy, tedious, and involves partial manual and automated task.
Neo banks’ customer support relies on a combination of chatbots and AI providing flexible, virtual, online support. Traditional banking relies on telephonic or in-person support.
Service offerings include-

·        Opening accounts

·        Payment and money transfer services

·        Loans

·        Budgeting

Service offerings include-

·        Opening accounts

·        Payment and money transfer services

·        Insurance services

·        Wealth Management

·        Loans

·        Merchant services

·        Mobile banking services

So, while Neobanking helps in overcoming the traditional banking challenges with the ease and convenience of availing services, they also pose huge security challenges. Given below are some major cybersecurity challenges faced by Neobanks.  

Cybersecurity Challenges faced by Neobanks

Without having a robust Cybersecurity measure in place, sensitive data may be at high-risk. For the size and business, they are into, Neobanks cannot afford to invest hugely in full-time security teams. They are dependent on third parties to level their security to the standards of the industry requirements. Given below are some major cybersecurity challenges that Neobanks may have to face

Inadequate budget-

Cybersecurity requires huge amounts of investment. Neobanks are comparatively smaller than the traditional banks and often lack the budget for having a full-time cybersecurity team for monitoring all the activities. Their low investments and budget on cybersecurity may result in weak security measures leading to higher levels of risk exposure.

Third-party dependency

Neobanks work digitally and are heavily dependent on third-party services to serve their customers. So, with the dependency on the third-party, the risk exposure is significant. If the third-party vendors do not have a tight Cybersecurity measure it may possibly result in compromised security measures and lead to data breach incidents.

Malware- Since the entire banking process is online, a lot of sensitive data passes through the network and digital devices. Networks and devices should be appropriately secured to prevent any incidents of a breach. In case a device connected with a network is compromised with malware, it may pose a huge threat to your sensitive banking data and may result in compromised cybersecurity.

Spoofing-

Spoofing is the latest form of cyber threat wherein the cybercriminals will impersonate the banking website’s URL with a website that is similar to the original one and functions the same way. So when the user enters his or her login credentials the sensitive data is stolen resulting in data theft and unauthorized access to critical information.  It is a common practice adopted by most attackers to steal sensitive data. With Neobanks completely operating online the risk exposure to such scams are high.

Phishing-

Phishing is an attempt made by a hacker to get access to sensitive information such as credit card details by disguising as a trustworthy entity in an electronic communication. Today, online banking phishing scams have evolved significantly, resulting in high profile incidents of scams. With Neobanks completely operating online the risk exposure to such scams are high.

Compliance

Almost all of the Neo banks would be required to comply with standards such as PCI DSS. This would be in addition to the local regulatory compliance such as those concerned with Privacy. In this virtualised environment with low budgets and manpower, adhering with these compliance requirements would possibly be the largest challenge faced by Neobanks.

 

What the future holds for Neobanks– Our Final thought

As the world goes completely digital, security measures need to be more complex and sophisticated. More so, they need to be updated from time-to-time. Implementing appropriate measures and adhering to industry best practices is one-way, Neobanks can get a grip over the cybersecurity challenges. Constantly educating customers about the evolving risk exposure and ensuring compliance to industry standards (PCI DSS) will go a long way in securing the environment and digital business operations. This brings us to recommending Neobanks to consult industry experts for implementing Cybersecurity measures that do not compromise the safety of customer’s and the institution’s data and money in any way.

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