The Safety and Security of Neo-banking

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Neo-banking vs Traditional Banking

If you are considering opening an account with a neo-bank, you may have concerns about the safety and security of your money, your personal details and other confidential information. If you’ve only ever dealt with traditional banks, this is a perfectly understandable concern.

Tight regulations, RBI and government monitoring, and a physical brick-and-mortar presence have all played into the reputations and customer trust surrounding traditional banks. However, instances of online fraud have put a spotlight on some of the safety and security concerns that exist even in traditional banks.

Contrary to popular belief, neo-banking actually carries many advantages in counteracting and avoiding such scenarios, and provides airtight security solutions that enable users to spend and deposit, worry-free. Through this post, we will explore some of the common concerns about neo-banking in particular, and clear some common misconceptions that have arisen over the past few years.

Mythbusting: Clearing Neo-banking misconceptions

1) The money deposited in my neo-banking account is not secure

Money deposited in a neo-banking account is as secure as it would be in a regular bank account in India. All the neo-banks in India work on a partnership model with traditional banks. This means that customer funds are parked in an underlying bank account. In fact, if your account is a savings or current account with a traditional bank, RBI guarantees customer funds upto ₹5 lakhs through Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance. The same is applicable for customer accounts opened with neo-banks, since the underlying account is provided by a traditional bank.

2) I am unable to access my money

With no physical branches, many consumers may assume that they will not be able to access their money in case of an emergency. However, established, full-stack neo-banks typically provide their customers with full access to ATM withdrawals. For example, with our Niyo IDFC FIRST Bank account, we allow customers to withdraw funds from ATMs both in India and abroad and transfer funds to their bank accounts 24X7 from our mobile app.

3) I have data security and privacy concerns

One big advantage neo-banks have over traditional banks is that they aren’t reliant on old legacy systems, and hence tend to have a strong focus on security and safety while designing their platforms. For our Niyo IDFC FIRST Bank account, for instance, we have built innovative features such as:

  • Locking/Unlocking the entire card or any specific transaction type
  • ATM and login PIN resetting
  • Setting transaction limits depending on the channel or type of transaction
  • Hiding account balance and card number within the app
  • Live transaction updates and detailed transaction history log

Additionally, neo-banks are all mandated to follow the same set of regulatory requirements like data localization norms or 2 factor authentication (2FA) for card based transactions. Furthermore, neo-banks were among the first to adopt more advanced transaction security enhancing models like MCC block, single-use virtual cards, and tokenized online transactions.

4) Not enough customer support

When it comes to matters of money, Indian customers still prefer having access to a person they can relay their queries or concerns to directly. Most full-stack neo-banks offer multiple options for customers to communicate with them. Customers can contact neo-bank customer support via phone, IVR, email, online chat, in-app chat, WhatsApp, etc. With Niyo IDFC First Bank account, our customer support team provides 24X7 access to customers through all the aforementioned channels. We also have a clearly defined escalation matrix, including nodal officers and a grievance redressal officer similar to traditional banks.

A few innovations around customer safety and security by neo-banks:

i) Niyo IDFC FIRST Bank account

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