How Can a White-Label Digital Bank Manage and Prevent Fraud

November 11, 2023

The first thing customers expect with any banking solution is security. Banking involves the transfer and preservation of sensitive information that, if stolen, can be devastating for customers. Banking fraud is a consistent problem worldwide, from the UK to the US, with customers consistently voicing their respective opinions about how seriously they take data security. Many consumers shy away from digital banking services because of data security issues, emphasizing the need for neobanks to optimize their security measures.


Additionally, there have been compliance crackdowns on neobanks, with some platforms either receiving fines for their lacking anti-money laundering (AML) system quality or facing investigations for money laundering. More emphasis has been placed on improving AML and Know Your Customer (KYC) requirements, integrating external software to help neobanks make better fraud checks.Though white-label neobank adoption has been increasing and the demand for digital banking platforms is ever-present, customers want assurance that they’re being protected when handling their financial business. To conquer the marketplace and capitalize on its various use cases, a white-label digital bank must outline and execute best practices to successfully manage and prevent fraud.


Why is Fraud So Persistent Withing Digital Banking?

Neobanks leverage several advanced security features to optimize the customer experience for everyone who uses them while following the anti-money mentioned above laundering laws and KYC requirements. The most advanced security feature that neobanks can leverage is passwordless verification to deter attackers from infiltrating their systems.

A white-label neobank powered by Omniwire use biometric authentication to safely engage customers, ditching passwords and, instead, requiring fingerprints or a face scan to validate customer identity. As a result, a white-label neobank facilitates improved sign-in convenience while raising login conversion rates and protecting sensitive customer data from being compromised or stolen. Private key signatures are also included to protect customer interests and information.

Additionally, a quality digital banking platform uses two-factor authentication to confirm customer identity, asking users to enter a verification code to verify that it’s the right person and device using the service. A white-label digital bank also uses role-based access control to restrict system access to authorized users while also leveraging encryption technology to add extra security layers.

So, with all that said, why do neobanks consistently face fraud issues?


Data Security Issues

Fraud typically happens when hackers or malicious insiders steal user data and utilize it on the internet for personal gain. Additionally, data security systems aren’t robust enough to handle the volume of threats they face.

Companies that leverage a white-label neobank need out-of-the-box solutions and modular building blocks to transform their systems, eradicating monolithic structures that create access vulnerabilities. By utilizing a patented technology of Multidecenralization™ to store customer data, malicious insiders or hackers cannot compromise it, getting a comprehensive solution rather than patching holes whenever compliance gaps are identified.


A Failure to Balance Security With Customer Experience

Part of why fraud has become a persistent problem for neobanks is a struggle to successfully balance security with customer experience (CX). Every digital banking platform is created with a customer-centric intent to address increasing demands for personalization and customized, robust financial services. However, with such a balance comes the pressure to provide a valid value proposition to deliver quality real-time banking experiences while leveraging automation to create simplified yet fully-compliant solutions for customers to build trust.

The struggle to establish a balance between security and CX comes down to a fledgling risk strategy, potentially increasing the potential for high levels of customer friction, applying traditional security controls to address modern security complexities. Using conventional security controls increases the likelihood that a white-label digital bank provides customers with false positives, diminishing customer trust. As a result, the chances of preventing account takeovers and customer data breaches are lower, compromising trust and customer loyalty. The lessening ability to prevent security breaches also damages the reputation of a traditional financial institution adopting a white-label neobank approach to digitize its banking services.


Failing to Meet KYC and AML Requirements

Some of the reasons that neobanks fail to fulfill Know Your Customer and anti-money laundering laws are because they’re trying to shortcut essential practices while others fail due to the regulatory restrictions they face.

The regulatory restrictions come down to the fact that many of the regulations that neobanks rely on are tailored to traditional financial institutions. However, more countries worldwide are specifying rules and laws regarding white-label neobank operations. And with more companies going digital, they and key regulators struggle to impose the necessary regulations that ensure seamless customer onboarding.

In other cases, neobanks look for the shortest and quickest solutions to achieve the security-CX balance, compromising their operations. Many neobanks make the mistake of focusing too intently on increasing market share and neglect the finer details of building a security infrastructure, thus engaging in cost-cutting measures when building comprehensive compliance departments. Though costs may mount when building a robust security setup, sacrificing costs negatively affects quality, which anyone creating/adopting a digital banking platform should consider.


There’s also the desire to create the shortest onboarding methods to satisfy mounting customer expectations as they seek to set up their accounts hastily and hassle-free. Never sacrifice customer security for convenience; they should always go hand-in-hand.

When creating or adopting a white-label neobank solution, institutions must be more agile in handling security concerns, expanding compliance teams to satisfy all requisites, and adopting video-based KYC processes ideal for customers, thus significantly eradicating the risk of enhancing fraud detection. Furthermore, institutions should consistently leverage artificial intelligence-based solutions to cut down liability, improve precision and reduce the number of false alerts prompted during detection, thanks to a risk-based approach.

When creating a digital banking solution that meets customer needs, you should review compliance as often as possible to ensure the necessary standards are consistently being met, with penetration testing completed periodically to meet current requirements. Also, all-digital network parameters should be regularly tested and security endpoints and web applications checked continuously.


What Can a White-Label Digital Bank Do to Meet Customer Security Expectations?

Creating a successful and reliable white-label neobank platform requires providing frictionless customer experiences while enhancing usability and boasting innovative features that satisfy the demand for personalized services.

Aiming for top-tier fraud prevention performance should be the priority, especially if you’re a traditional financial institution like a bank, credit union, or buy now, pay later services containing a potent asset mix to satisfy customers. Fraud prevention saves money and restores reputations, ensuring that the digital banking solution you’ve created or adopted garners positive attention from customers. A solid mobile fraud-detection infrastructure is necessary to combat digital threats like phishing and malware, tactics often used by hackers to steal sensitive customer data.


Also, to create frictionless banking experiences for customers, a white-label digital bank should support quick, real-time decision-making, providing passwordless solutions including biometric authentication. These measures substitute passwords, PIN codes, and other cumbersome means that take more time and frustrate customers. Additionally, creating frictionless solutions to enhance customer experiences requires increased automation to reduce redundant tasks and eliminate manual reviews, being data-reliant and robust. Plus, the technology used to facilitate frictionless experiences through a white-label digital bank should support innovative customer experiences for years to come.


Furthermore, a quality digital banking solution should be cost-effective, promoting value over price and affording customers new-found control over their financial decision-making. Neobanks are scalable solutions that accelerate growth, featuring lightweight features and easy integration. Having an experienced fraud expert to guide you through implementation is a wise call to make your security infrastructure as robust as possible. With expertise available to guide you through the security process, you can spend less time worrying about optimizing your fraud prevention mechanisms and work more on improving the quality of the financial services that your digital banking platform provides to customers.

Taking shortcuts when establishing security solutions has to be avoided at all costs. Going the extra mile allows institutions and enterprises to properly detect instances of identity theft, ad fraud, account sharing, and malicious collaboration that threaten to undermine or destroy your operations.


What Does the Future Hold for the Neobank Customer Experience?

Any digital banking platform must meet the future-oriented and unique needs of customers who consistently seek ready-made solutions, especially millennials and Gen Z customers with significant digital experience. When establishing a white-label neobank, always think with the future in mind, creating more secure and scalable solutions that help you stay one step ahead of threat actors and fraudsters and provide customers with the seamless experiences they require. As a result, traditional financial institutions that adopt neobank features will develop a more significant competitive advantage and become more formidable within the marketplace.


With modern authentication processes, increased dedication to meeting ever-changing compliance standards, and a total focus on making financial services easy to use. They will reward your transparency with these processes when they know where their information is heading with every transaction.

Optherium is building a marketplace with its digital banking platform, including embedded services for added customer convenience, such as microloans, multicurrency accounts, and buy-now-pay-later benefits to satisfy your financial desires. Learn how our blockchain-based solutions can improve your financial institution, large enterprise, or capital-infused startup.  Contact Omniwire today and find out more details about our advanced technology and check out our white-label neobank solution, a turnkey digital banking solution that makes every aspect of your banking effortless.