A growing trend in the eCommerce space is the reliance on Neobanks, which function as a digital entity capable of utilizing apps and online platforms to replace traditional physical branches. The rise of neobanks has been a huge draw for many eCommerce consumers, which in many ways has already helped disrupt traditional banking.
What are Neobanks?
Neobanks are helpful constructs in today’s interconnected world. As of this year, nearly 250 neobanks are available for use globally, representing a strong growth in recent years. The primary difference between neobanks and traditional banking systems is the level of security and structure in which each business is run.
With eCommerce more important and common in consumers’ lives than ever before, access to secure transactions is paramount. This is where a neobank come in, harnessing advanced blockchain technology in the form of layered security protocols.
Unfortunately, the rise in hacks, security lapses, or data breaches is real for many consumers. This not only erodes trust in banking or eCommerce as a whole, but also in the cards or banking services used to make these purchases.
Advantages of Neobanks in eCommerce
Neobanks represent a step in the right direction, emphasizing security through blockchain, artificial intelligence, and machine learning solutions. This is reflective in the allocation of resources at any neobank, which inherently possesses several advantages over traditional banks.
For example, neobanks do not need to dedicate precious resources or cash flow to physical location, upfront costs, rental fees, and office space. Rather, many neobanks have opted to bolster their security and transparency protocols in a bid to help streamline eCommerce and other functions.
Ultimately, the structure of neobanks is ideally suited to help disrupt traditional banks in the eCommerce space. Many of these apps have ramped up since 2020, providing vital services at an important time to millions of unbanked and underbanked households.
During the worst days of the pandemic, neobanks helped millions with transfers, purchasing, and an entire range of utilities. This has only increased since, with the eCommerce space forever being transformed.
eCommerce Businesses Opting for Neobanks
eCommerce businesses have many advantages to choose from when exploring the possibilities of neobanks over traditional banking entities. Traditional banks or legacy systems are inherently behind neobanks in terms of investment, technology, and business models.
For the rapidly evolving world of eCommerce, it takes dedicated cutting-edge solutions to forge ahead in a competitive industry. Unfortunately for many traditional banks, this is simply not a priority and has been reflected as such in recent years. In addition, the reputation of the banking sector has taken a hit in recent years due to costly scandals, investigations, and episodes of abuse.
Conversely, the most successful neobanks are regulated by leading financial entities and are in full compliance with the highest security standards. Devoid of damning headlines, neobanks have largely charted a course unaltered and unimpeded, instead using this window to improve on its technology batch and risk management.
This has played out during rigorous testing and risk management strategies against the constant threat of cyberattacks and leaks. Neobanks regularly test their blockchain secured networks constantly to ensure that all endpoints are protected, and users are secure.
In the eCommerce space, security is arguably the most important attribute for any consumer. Neobanks have quickly recognized this sentiment, focusing on two-factor authenticator systems that can come in a variety of forms.
This simple measure has proven instrumental in bolstering security protocols, dramatically reducing the efficacy of cyber threats and hacks. With two-factor authenticators, each transaction is protected with an extra layer of security, aside from passwords and secret questions.
While many traditional banks also sometimes utilize digital apps that include 2-factor authentication, these mostly are available for only credit and debit card purchases and commonly have experienced issues.
eCommerce Forging Ahead with Neobanks
Looking ahead, neobanks will continue to be the go-to option for eCommerce businesses. The inherent advantages in neobanks’ business model, structure, and focus better caters to the eCommerce industry and its evolving needs.
It will be interesting to see if neobanks can further erode traditional brick and mortar banking systems to eventually overtake them in popularity. One thing is for certain, neobanks are more than a passing fad and have already proven to be a legitimate force in the eCommerce space.
