Australia’s neobank movement has carved out a niche by targeting incumbents with braggadocio and, more recently, higher savings interest rates – but as customers come onboard, can contender neobanks stay abreast of security and customer service issues?

With newly minted neobank Xinja boasting that it had received over $100m in deposits to its Stash savings account in just three weeks, it’s a question that more and more Australians will be asking as neobanks move from the conceptual phase to actual service delivery.

Enthusiastic neobanks have adopted unconventional personas, with Xinja touting a “no dickheads” hiring policy and building its brand around the idea of ‘can’t-free banking’ with a campaign that, it cryptically said, would “cock a wee bit of a snook at traditional banking experiences.”

Friendly banks may resonate especially well with customers in the wake of the devastating Royal Commission – which has left the banking establishment a sitting duck for neobanks’ sniping – and looming Consumer Data Right legislation that will pressure-test every banks’ data management capabilities.

Repeated surveys have highlighted a chronic lack of trust in banks, with one Deloitte survey finding that just 49 per cent of consumers trust banks to keep their promises and just 56 per cent saying that their banks dealt with complaints and enquiries “effectively”.

Indeed, a recent survey of 1,000 Australian banking customers found that 94 per cent believe banks don’t act in their best interest – reflecting what ME Bank CEO Jamie McPhee called a “quite disturbing” habituation in which customers simply accept this is how banks behave.

Given these low levels of consumer trust, it’s hardly surprising that consumers are ready to jump on the neobank train – with Capgemini’s recent World Retail Banking Report finding that banks “are struggling to deliver a delightful last-mile experience” and more than half of customers would likely sign up for services from a challenger bank in the next three years.

Neobanks, neofraud

Yet while it’s early days for neobanks in Australia – a recent Nielsen poll found half of Australians still don’t know what a neobank is – the upstarts’ honeymoon may end quickly as they start dealing with big-bank problems.

One Australian customer, who asked not to be named, reported experiencing a fraudulent transaction just two weeks after getting his neobank credit card.

He’s not sure how the card details leaked, although noted that its inclusion of card number, expiry date and CVV security code on the same side of the card may have made it more susceptible to being photographed.

Early consternation gave way to satisfaction after the transaction was reversed the same day, in a “slick and well-handled” show of customer service “comfortably on par with the big 4”.

Despite their focus on luring customers with customer and mobile-friendly interfaces, neobanks’ increasing profiles mean their long-term reputations will be shaped by the way they handle issues such as security, scalability and resilience.

With CDR putting a focus on the management of their personal data, consumers are also likely to be wary of neobanks that stretch the friendship by leveraging their data in different ways: just 16 per cent of respondents to the recent Unisys Security Index said they are comfortable with their banks sharing data with other financial service providers.

That could pose new challenges for neobanks like 86400, which will soon extend its offerings with an energy-comparison service that has echoes of disruptors-turned-incumbents like iSelect.

Safe as houses?

Even as neobanks walk the line between disrupting their market and perpetuating it, overseas experiences suggest that their growing numbers could create challenges for security and fraud-management processes.

UK neobank Monzo, for one, suffered a security issue that forced it to get 480,000 of its 2.6m customers to change their PIN codes.

That couldn’t have helped customer perceptions after the bank had to pull products after poor customer response and random account blocks drew over 1,500 members to a Facebook group called ‘Monzo stole our money’.

And, in a controversy reminiscent of Westpac’s disastrous recent failure to comply with anti money laundering legislation, UK neobank Revolut was last year excoriated after reports that it was unable to detect potentially suspicious transactions.

Given that Australian consumers’ top security concerns include unauthorised access to their personal data and bankcard fraud – named, respectively, by 57 per cent and 56 per cent of Unisys survey respondents – managing perceived exposure to fraud will be crucial for neobanks.

Hiring security-related staff is key: 86400, for one, went to market for a financial crime analyst in January while Xinja is currently advertising for a financial crimes analyst and cracking fraud analyst “to help us to protect our customers as we continue to scale at pace”.

Yet neobanks’ laissez-faire culture hasn’t necessarily translated into employee bliss: Revolut, for one, has reportedly been bleeding staff – an issue that all neobanks could face if cashed-up banks poach their key hires.