After The Disruption: Alt-Banking Goes Straight, Chases Bad Guys

As alt-banking matures and FinTechs mushroom, challenger banks are losing their cool “disruptor cred” and blending into the banking landscape. Not as cool. But with 62 percent of Americans doing most of their banking online – and 69 percent saying they’ll use banking apps routinely going forward – digital banking is quickly becoming passé to consumers.

Their rebel veneer fading, challenger banks and FinTechs are learning the price of being just another part of the financial ecosystem. It’s ironic that FinTechs wanted to be perceived as equal to any legacy bank. File that under “careful what you wish for” – because with assent comes expectation. Consumers have little patience for dull FIs – 49 percent of 18- to 34-year-olds would drop their current bank for a better CX … and for FinTechs, the stakes are even higher.

The latest edition of the PYMNTS Digital Banking Tracker reports that while FinTechs and challenger banks scramble to create better mobile experiences, consumers are likely judging them on things like convenience, instant money, access and security.

On another front, the explosion of banking apps has spawned a new wave of cybercrooks that are exploiting next-generation faults in real time. The unique and unprecedented set of circumstances has created some uncertainty in the space. Along with the risks come untapped rewards in the form of new business opportunities for established and challenger FIs alike.

Easy Come, Easy Go

Recent entrants to the U.S. market offer a glimpse of what the post-disruption era looks like for FinTechs and alternative banks. Based in Germany, N26 arrived stateside in 2019. Among their reasons for setting up shop in North America: “…[it’s] a market that has high-level phone penetration, people are really tech-savvy and are used to trying out new products [and] some of the payment and banking infrastructure is fairly outdated,” noted N26 CEO Nicolas Kopp. “I think that combination … made [it] a really attractive option for us to expand into the U.S.”

But that attraction is not without wrinkles. Europeans and Americans bank differently: The former are bigger savers, while the latter are more open to credit usage and expect a robust loyalty scheme for their money. N26 partnered with San Diego-based Axos Bank to do business in the U.S., hitting the ground running with a slew of free accounts and services to draw converts.

Internet villains are watching closely and working furiously. Kopp is particularly concerned about the rise of synthetic identities, deepfakes and data breaches, as these new hacking measures have been unsettlingly successful in a number of recent cases.

To Catch a Thief with Data

The infiltration of fraudsters into mobile banking during a frenetic digital transformation is perhaps the top concern of banks and FinTechs, in the U.S. or anywhere. This has led to a rise of machine learning (ML) and artificial intelligence (AI) platforms purpose-built to sniff out crooks.

Feedzai is one best-in-class anti-fraud/AML platform that is making inroads with alt-banks and FinTechs. Its data visualization tool is enabling FIs to predict fraud events and patterns, which is vitally important given the fact that consumers still generally believe that online banks are less secure than legacy institutions.