November 08, 2019

5 Things You Should Know About Neobanking

by Jscrambler

jscrambler-blog-5-things-neobanking

You might not be entirely familiar with this term of "Neobanking". While it's still not a universally adopted denomination, it describes a sub-industry of Banking that can't simply be described as "Digital Banking".

Neobanks are 100% digital ⁠— with no physical branches and no face-to-face interaction. Instead, they operate solely through digital channels and provide their services through Web and mobile applications.

There's much to be said about these players that challenge traditional banks. So, let's explore 5 of the most interesting facts about Neobanks.

1 ⁠— Neobanks are growing fast

While Neobanks are still a relatively recent phenom, they are fueled by impressive growth. As of August 2019, they cumulatively amass over 30 million customers ⁠— and this figure excludes highly populated markets like China and India. Some estimates predict that UK-based challenger banks will grow threefold within 12 months, hitting the 35 million users mark.

Even among other Fintechs, Neobanks make up the fastest-growing segment. This growth is vastly fueled by aggressive investments in Neobanks, with several "unicorn" funding rounds and a combined $2.5B investment in 2019 to date.

South America is displaying an especially interesting number of rapidly growing Neobanking start-ups ⁠— with Mexico alone quickly becoming a new "battleground" for challenger banks.

2 ⁠— Their IT infrastructure is a competitive advantage

According to some banking industry analysis, traditional banks spend 70% of their IT budget on maintaining legacy systems. On the contrary, by not having to rely on these legacy systems, Neobanks experience servicing costs that can be up to 70% lower than those of incumbents.

Neobanks' IT approach is then to rely on micro-services and standardized APIs for the back-end, while leveraging open-source front-end frameworks like React Native and Ionic to develop modern web and mobile apps.

By betting on these front-end frameworks and third-party JavaScript libraries and scripts to build modular applications, Neobanks enjoy fast product development with lower costs. This, in turn, enables them to rapidly launch new features and update existing ones according to customers' feedback.

3 ⁠— Neobanking apps are feature-packed and perform much better

As mentioned above, because Neobanks rely on peer-reviewed JavaScript frameworks and libraries, they greatly reduce time to market and iterate quickly. In fact, a 2018 market analysis shows that, on average, Neobanking apps are adding 10 new features per year, compared to 6 in traditional banks. This includes an average of 27 app updates per year, while incumbents average at under 10.

Another key aspect of mobile apps is their performance, as users are more demanding than ever when it comes to loading times and overall performance. The same 2018 study found that Neobanking apps present better user experience across the board ⁠— performing 42% faster than traditional banking apps.

4 ⁠— Consumers are happier with Neobanks than with incumbents

There's no question that Neobanks are mainly fueled by hefty investment rounds, as we explored before. But while one of their KPIs is the number of customers, they can't afford to stop at customer acquisition. Instead, customer retention is a major concern to business sustainability.

To Neobanks, the customer is everything. That's why so many definitions name them as "customer-centric" banks ⁠— all their actions are based on customer needs, wants, and continuous feedback.

This customer focus is unsurprisingly producing results. Recent surveys in the U.S. point out that 90% of consumers in the U.S. are satisfied with Neobanks, while the figure is only 66% for the top 50 global banks.

5 ⁠— Neobanks need to address security to unlock customer trust

Amidst their need to quickly launch product updates to exceed customer expectations, Neobanks' often have to prioritize development speed over security. As a result, two major security gaps appear: exposed client-side JavaScript and client-side data breaches.

The threat of exposed JavaScript happens because Neobanks end up placing important logic on the client-side. While it is ill-advised to do so, they often have no choice because storing all JavaScript on the server would mean performance drops and a hit to the user experience. To mitigate this problem, Neobanks must employ enterprise-grade JavaScript protection ⁠— preventing code reverse engineering, debugging, and tampering.

As for client-side data breaches, Neobanks are especially at risk since they integrate external code ⁠— mostly npm packages and third-party scripts. Both of these can serve as a gateway for attackers to breach Neobanks without having to touch their servers. Instead, by going after Neobanks' smaller, less-secure third-party providers, attackers can launch a web supply chain attack and steal valuable financial and personal data. Mainstream security approaches such as using a strong Web Application Firewall (WAF) fall short of preventing these attacks. To properly address this threat, Neobanks must gain full visibility of the client-side with a webpage monitoring solution, so that they detect and stop these attacks in real-time and keep their users safe.

White Paper Supply Chain Attacks

Final Thoughts

Neobanks are bringing a new force to the Banking sector. They challenge traditional banks by delivering highly engaging digital banking experiences and are quickly amassing users all across the globe.

But guaranteeing a fantastic user experience isn't enough. Neobanks still have to gain the trust of consumers in a market where security is everything. With that goal in mind, they are relying on cutting-edge security technology to keep their apps and their users' data safe. Ultimately, Neobanks will likely redefine the paradigm of banking.

If you're interested in knowing how Jscrambler is helping Neobanks secure their apps and users, talk to us!