HomeFinanceNeo Banking — It's relevance in preventing digital identity fraud

Neo Banking — It’s relevance in preventing digital identity fraud



Today, banking has become all about convenience and pace. With an emphasis on technology to enhance user experience with frictionless operations and tailor-made banking solutions, Neo Banks have become a rage globally. 

There are over 250 Neo Banks the world over and there are many more mushrooming with industry specific solutions and products, forcing the mammoths of the banking industry to wake up and take stock of the situation. Most of the well-established banks are burdened with their legacy systems and wide network of branches. 

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Their lethargic response to the adoption of newer technologies has increased the cost of operations in an industry that functions on low margins. Free from all these ails, Neo Banks, with their complete focus on digital technologies, have caught the imagination of the neo generation. 

Heritage banks enjoy a wider factor of trust and acceptance despite their inefficiencies. On the other hand, although Neo Banks enjoy popularity among certain sections of consumers, their ascent trajectory depends solely on their ability to demonstrate fraud prevention and risk mitigation strategies that will eventually translate into wider acceptance and digital trust.    

Ensuring Digital Trust: 

As the systems in Neo Banks are fully automated, banks must ensure that they get prior and adequate information before the on-boarding process to open an account so that they can subject the customer’s digital identities to rigorous fraud checks such as the synthetic identity fraud, wherein fraudsters use the personal information of different people to create authentic-looking identity and commit account opening frauds. It is estimated that $6 billion is lost due to this globally every year. Account opening frauds are only a precursor to frauds of a more serious nature such as availing a loan, money laundering. etc.  

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Companies have adopted various e-KYC tools to mitigate risks and smoothen the digital on-boarding process. Made mandatory by the government, KYC checks sufficiently address the verification of a person’s physical identity.

However, it fails on the verification of digital identity to check for synthetic identity. Identifying synthetic fraud is easier said than done. The artistic use of alternate data based on fuzzy logic can provide a risk signal to companies.

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For example:

Email address:  Is it created on a genuine and well-known domain? What is the vintage of the address? Check if it is the primary one? Which social media is it linked to? How old is the social media account? Is it active? If so, does it appear legitimate?

Phone number: What is the name associated with the phone number? What is the address and the age of the number? Is it used in messaging and social media? Is it a landline or a mobile number?

IP address: Are they using a VPN? Are they logging in from a public server?

Device used to login:  To check if it is an emulator or a real phone or computer?

Understanding what is suspicious can be a challenge for fraud prevention teams for which employing AL-tools will be vastly beneficial irrespective of the volumes. Fraud prevention is not a one-time activity. While all banks regularly monitor accounts for fraudulent transactions, this is essentially a reactive approach, Neo Banks must step up proactively to monitor customer behaviour and not just transactions. This will certainly be a competitive differentiator.

While there is always an element of trial and error in formulating a formidable fraud prevention strategy, with reduced human intervention all the decisions are data driven. Data is the most valuable resource in formulating their strategy but it is always a reflection of how good the data is and the tool employed to analyse it. A good analytical investigative resource will assist in getting a resolution for fraud incidents in a timely manner.


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Shivraj Harsha
Shivraj Harsha
Shivraj Harsha is the Co-founder of TrustCheckr

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