The Rise of Digital Banking & The Challenge of Establishing Trust

The Rise of Digital Banking & The Challenge of Establishing Trust

KYC & AML APIs are Key for Open Banking | Neobanks | Challenger Banks

As more people transact and spend time online, the demand for digital solutions and services, including banking, has increased significantly. Digital banking is growing rapidly and evolving beyond traditional financial institutions (FIs). Going digital provides tremendous convenience with 24/7 services and an opportunity to reach more of the world’s population. With open banking, challenger and neobanks, there is no shortage of options that have quickly become widely accepted. But there remains one common ingredient: Trust.

As Forrester* notes, “A new pattern of consumer trust is emerging, changing what and who consumers trust — and why. Consumers no longer want piecemeal privacy management tools; now they flock to companies that codify trust as a corporate strategy.” It’s easy to see why this may be the case as the analyst firm also says that fraud and data breaches in banking will reach an all-time high in 2021.*

In this era of rapid digital transformation growing fraud, how do these new ways of banking differ, and how can they succeed in gaining the trust of consumers?

Digital Banking vs Online Banking

Just as it sounds, digital banking is the availability of various financial-related services through solely digital channels rather than a physical branch of a bank. This differs from online banking that only digitizes the core aspects of banking. Digital banking digitizes every program and activity undertaken by the FIs and their customers. A digital bank represents a virtual process that includes online banking and beyond.

Challenger Banks vs Neobanks

A challenger bank is one that has a physical presence or branch but also offers advanced digital services as part of their overall fintech operations, typically more so than traditional banks. The presence of challenger banks in the general banking sector is significantly smaller compared to the more widely known banks.

Neobanks offer a range of different financial and banking services directly to consumers solely across digital channels. These FinTechs or banks operate on a banking license either acquired independently or rented from an incumbent bank. Aite* notes, “Neobanks position themselves as customer-centric, embracing transparency and customer satisfaction. This is one of the key differentiators to build trust with customers and compete with incumbent banks. Indeed, neobanks score consistently higher on customer satisfaction than incumbents.”

Neobanks and challenger banks are customer-centric, focusing on transparency and customer satisfaction. This is one of their strategies to build trust with customers and compete with traditional banks. Knowing their customers well from the moment they are onboarded and throughout their entire lifecycle is paramount for these types of banks. Both offer easy and fully digital account opening and customer onboarding. Supported by RegTech platforms, these banks streamline the new account opening process to minutes and reduce the amount of data requested.

Open Banking

“Open banking responds to customers’ demand for more choice, better customer experience, and more control over their data,” says Aite. Open banking is the system of allowing access and control of consumer banking and financial accounts through third-party applications. It provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank FIs through the use of APIs. Consumers benefit from new insights, access to products and personalized services across institutions, as more of their data is shared more widely. The key is trust in these banks and the security of the technology used in the data ecosystems created.

Technology to Establish Trust Amid Rapid Growth

Many feel that open banking will reshape the banking industry on a global scale. In the UK alone, it is expected that by 2022 almost two-thirds of adults will be open banking adopters and that the industry will generate a revenue opportunity of £7.2bn.

According to Aite, neobanks and the like help accelerate the banking industry as a whole, “competition from neobanks urges incumbent banks to accelerate their strategic investments in digital banking as well.” However, one of the main reasons for the dependency on technology as part of their core offerings and operations is because “digital banks depend on such technology in order to compete with incumbents, as they lack incumbents’ branch infrastructure and require full automation of their core processes, such as account opening, card issuing, and customer service.”

Forrester maintains that all banks need to keep their fraud management up to date and adopt more machine-learning-based solutions to combat fraud in real time. RegTech companies like Acuant with identity verification and continuous KYC services, provided via API, can be easily integrated into any bank’s platform following open banking standards. The right onboarding technology helps neobanks and challenger banks reduce friction on the front end and offer a customer friendly account opening and onboarding process, offering them a competitive advantage over incumbent banks going through the digital transformation process. This also sets the tone for the relationship, building trust and loyalty from the start.

The best solutions will address the most important questions today, with the most certainty:

  • Is this a real person?
  • Is this person who they claim to be?
  • Can I do business with this person?
  • Should I do business with this person?

Trust, security and customer experience are indispensable components for success, especially when it comes to banking. Customers need to be able to trust that their personal and financial data is being protected. And banks looking to comply with industry regulations and anti-money laundering (AML) measures want to ensure customers are trustworthy from onboarding and throughout the relationship.

Without the proper technology, sophisticated fraudsters will use advanced methods, including synthetic identities, to attempt to circumvent security measures to exploit any vulnerabilities in the system. Companies that proactively use identity proofing and AML technology that includes know your customer (KYC), transaction monitoring, document authentication and biometrics as part of the onboarding and ongoing customer life cycle, will have greater success of preventing fraud and financial crime.

An Integrated Approach to Fight Fraud

Data shows that the best timing to detect fraud, control and fight financial crime is during the customer onboarding process; where low friction KYC technology is fundamental to ensure that customers will not abandon the process, and at the same time the scrutiny of compliance takes place. To guarantee this, technology requires a proper orchestration of a clear workflow that integrates different pieces of solutions in a holistic way, working dynamically to complete a whole process from data capture, identity attribute inputs, data-centric validation, data scoring and the consolidation of all sources in a simple representation or trust score that allows a quick objective decision.

Despite this strong prerequisite, many digital onboarding processes continue to be static and only implemented during the customer acquisition, without continuing the journey of the customer lifecycle. They do not leverage machine learning and advanced algorithms that gave give valuable insight in real time to identify trusted users and fraud patterns for actionable insight.

The current environment and opportunity for neo and challenger banks calls for a friendly integration of different technologies and processes that can easily automate your KYC compliance, with identity verification, AML, fraud prevention, data validation, third-party sources and transaction monitoring into a simple interface to manage and control risk in.

Ultimately, banks that use the right technology to establish and maintain trust, and therefore provide frictionless and secure customer experiences, will have the advantage.

Book a meeting to learn more about how Acuant’s solutions support neobanks and challenger banks.


* Neobanks: The Bumpy Road to Profitability, Aite 
* The Future Of Banking Is Built On Trust, Forrester 
* Predictions 2021: Banking, Forrester 
* Artificial Intelligence Is Transforming Fraud Management, Forrester 


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