The banking and finance industry has seen a huge technological shift from customers visiting physical bank outlets for financial services to having digital access to those services at their fingertips. New concepts have emerged over the past decade, such as online banking, digital payments and now neobanks – banks that provide digital banking and financial services without having a physical presence. As consumers embrace digital-only choices, demand for digital banking and neobanks is on the rise. In fact, according to a recent Twimbit report, “India, the new hub of Neobanks 2.0”, the Neobank market in India is growing at 43% CAGR.
With the rise of new banking methods and digital payment platforms accelerating the speed of transactions, it is no surprise that the use of app-based banking services has increased dramatically. However, this upward trend has also inevitably led to an increased risk of data exposure and cyber threats.
Cybercriminals are integrating digital technologies and criminal strategies to take advantage of these vulnerabilities and conduct fraud on a scale never seen before. According to CERT-In, 14,02,809 and 6,74,021 cybersecurity incidents were reported in 2021 and 2022, respectively. With the digitization of financial services, neobanks have become one of the most attractive targets for cybercriminals.
In fact, there are several types of cyberattacks that have been observed. Phishing and identity theft are some of the cyber threats that neobanks need to be prepared for, as banking is conducted online and bad actors can potentially gain access to customers’ bank details, such as login credentials, credit card numbers and other personal information. Moreover, a huge amount of sensitive data is processed by Neobanks on cloud and digital platforms, which makes them vulnerable to malware attacks. According to a report by Mimecast, 75% of organizations faced malware attacks in 2022.
A bot or worm can bring down the entire Neobanks ecosystem, as there is a huge amount of sensitive data hosted on the network. Another challenge Neobanks might face is the lack of adequate budget to deploy an internal cybersecurity team. Therefore, they have to partner with third-party providers for the services. The risk of cyberattacks and data breaches could potentially increase if the provider does not have a robust security infrastructure or the required skills.
Despite the risks, the demand for Neobank’s services is still high as they meet the demands of the new reality, making it even more crucial for Neobanks to focus on penetrating their ecosystem. Here are some ways Neobanks can focus on ensuring a robust security infrastructure:
- Respect for compliance: The first step they must take is to comply with all regulations to ensure safety. Compliance can help them regularly assess their risk and test metrics such as penetration, application, devices, and network.
- AI/ML for detection: Artificial intelligence will allow neobanks to examine the relationship between identities and transactions and differentiate between legitimate and criminal activities, helping them to avoid cases of money laundering.
- WAF and API Protection: Neobanks provide application-based services that require protection for Web Application Firewall (WAF) and API security against DDoS attacks and malicious bots. To greatly simplify operations, Neobanks must reduce the number of terminals and apply a centralized security policy across the entire application fleet.
Opting for a robust security infrastructure, adopting advanced technologies and ensuring full compliance with the regulatory framework are important steps that Neobanks must focus on to ward off cybercriminals.
Opinions expressed by Dhananjay Ganjoo, Managing Director for India, and SAARC at F5
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