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Addressing payment challenges for neobanks with Routefusion’s Unified Payment API.

Neobanks, or digital-only banks without physical branches are one of the biggest success stories in banking in the past decade.

The global neobanking market was valued at approximately $98 billion in 2023 and is projected to grow to $3.4 trillion by 2032, with a compound annual growth rate (CAGR) of 48.6% from 2024 to 2030. The banks’ digital-first solutions and the continuing demand for customer-first convenience offerings are at the heart of this growth story.

While neobanks are revolutionizing the banking industry, going global and growing sustainably in any economic or regulatory environment is hard. Routefusion’s Unified Payment API, backed by one of the most seasoned teams in the industry, helps neobanks address payments and compliance-related challenges with confidence.

While we break down the benefits of partnering with Routefusion below, tech-savvy readers can also go directly to our API docs to learn more.

The payments landscape for neobanks and inherent challenges.

In order to stay competitive with both existing incumbent banks and an increasingly crowded landscape of new banks, neobanks must stay competitive in not just their digital offerings, but in operational efficiency and customer satisfaction.

Cross-border transactions for Neobanks are often complex and costly, regulatory compliance demands are resource-intensive, fraud prevention requires robust security measures, and integrating multiple payment systems is often cumbersome. These challenges can create bottlenecks in operational efficiency and customer satisfaction, impeding future growth prospects.

1. Complex Cross-Border Transactions

There are approximately 180 currencies recognized as legal tender in 195 countries worldwide. This number includes both widely used international currencies and those used in specific regions or countries. Managing multiple currencies requires frequent exchanges and conversions, which can incur significant costs. Fluctuating exchange rates can also introduce volatility and risk, affecting pricing strategies and financial planning​.

There are two challenges in particular that can impact Neobanks:

1. They need to have the right banking partners across every region, which can be time-consuming and expensive.

2. These traditional banking partners are often slow, expensive, and complicated, creating a bottleneck for neobanks that aim to provide seamless international services.

Routefusion’s API provides a single access point for multiple payment corridors and networks, enabling neobanks to offer fast, cost-effective, and reliable cross-border transactions. By aggregating various financial institutions and local payment networks into a single API, Routefusion eliminates the need for neobanks to manage multiple partnerships and integrations​.

Integration Time

It takes a customer approximately 1 month to integrate with Routefusion vs. 6 months to integrate directly with a bank or another payments platform. With Routefusion’s speed-to-market, neobanks can integrate fast and grow even faster.

Efficiency

Transactions are processed more quickly, reducing the time customers wait for international payments.

Cost-Effectiveness

By leveraging local payment networks, Routefusion minimizes the fees associated with traditional cross-border transactions​.

2. Regulatory Compliance

Navigating the complex web of regulatory requirements across different jurisdictions is a major challenge for neobanks, and requires significant resources and expertise - this is one of Routefusion’s biggest competitive strengths.

Addressing these regulatory compliance challenges requires neobanks to invest in robust compliance management systems and establish strong partnerships with regulatory experts and compliance solution providers like Routefusion.

Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations:

Neobanks must comply with stringent AML and KYC regulations to prevent their platforms from being used for illicit activities like money laundering or terrorist financing. Verifying customer identities and monitoring transactions for suspicious activity can be resource-intensive and technologically complex.

Payment Services Directive (PSD2)

In regions governed by PSD2, neobanks must ensure compliance with open banking regulations, which require them to provide third-party providers (TPPs) with access to customer account information and payment initiation services. Implementing secure APIs and maintaining data privacy while facilitating third-party access can be challenging.

Cross-Border Payments Compliance

Neobanks operating internationally must navigate the complexities of cross-border payment regulations, including foreign exchange controls, sanctions regimes, and international payment standards. Ensuring compliance with diverse regulatory frameworks while facilitating seamless cross-border transactions requires sophisticated payment infrastructure and regulatory expertise.

Transaction Monitoring and Reporting

Neobanks must monitor customer transactions for suspicious patterns and report any potentially illicit activity to regulatory authorities. Developing robust transaction monitoring systems capable of detecting anomalies in real time.

Regulatory Changes and Updates

The regulatory landscape governing payments is constantly evolving, with new laws, guidelines, and enforcement actions emerging regularly. Neobanks must stay abreast of regulatory changes relevant to their operations and adapt their compliance programs accordingly to avoid non-compliance penalties and reputational damage.

Routefusion integrates robust compliance features directly into its API, helping neobanks meet regulatory requirements without additional overhead. These features include:

Automated KYC/AML Checks

Routefusion’s API includes automated KYC and AML checks, streamlining the compliance process and reducing the risk of regulatory breaches​.

Compliance Monitoring

Continuous monitoring and updates ensure that neobanks remain compliant with the latest regulatory changes across different regions.

3. Fraud Prevention

Digital-only banks are particularly vulnerable to cyber threats and fraud. Addressing these challenges requires neobanks to invest in advanced fraud detection and prevention technologies, such as machine learning algorithms, behavioral analytics, and biometric authentication, to adapt to evolving fraud threats effectively.

Additionally, fostering a culture of security awareness among employees and customers and establishing robust incident response protocols are essential for mitigating fraud risks and safeguarding the integrity of neobank operations.

Identity Verification

Verifying the identities of customers in a digital environment without physical documents can be challenging. Neobanks must develop robust identity verification processes that rely on a combination of biometric authentication, document verification, and behavioral analytics to detect and prevent identity theft and account takeover fraud.

Transaction Monitoring

Neobanks must monitor customer transactions in real-time to detect unusual patterns indicative of fraudulent activity. However, distinguishing between legitimate and fraudulent transactions in a high-volume environment requires sophisticated fraud detection algorithms capable of analyzing vast amounts of data and identifying subtle anomalies without generating false positives.

New and Emerging Threats

Fraudsters continually evolve their tactics to circumvent detection measures, making it challenging for neobanks to stay ahead of emerging fraud threats. Neobanks must continuously monitor for new attack vectors, such as account cloning, SIM swapping, or synthetic identity fraud, and adapt their fraud prevention strategies accordingly.

Balancing Security and User Experience

Implementing stringent security measures to prevent fraud can sometimes introduce friction into the user experience, leading to customer frustration and abandonment. Neobanks must balance robust security protocols and seamless user interactions to minimize fraud risk without compromising convenience.

Mobile Banking Vulnerabilities

Neobanks rely heavily on mobile banking apps for customer interactions, making them susceptible to mobile-specific fraud threats such as malware, phishing attacks, and mobile device hijacking. To mitigate mobile banking risks effectively, neobanks must implement multi-layered security measures, including secure app design, encryption, and device authentication.

Third-Party Risks

Neobanks often integrate with third-party service providers for various functionalities such as payment processing, customer support, or data analytics. These integrations can introduce additional security vulnerabilities and increase the risk of fraud through supply chain attacks or data breaches, so integrating with the right partner like Routefsuion is mission-critical.

Routefusion employs advanced security protocols and real-time monitoring to detect and prevent fraudulent activities. The API includes:

Real-Time Fraud Detection

Routefusion’s API utilizes machine learning algorithms to identify and flag suspicious transactions in real-time, allowing neobanks to act swiftly to prevent fraud.

Data Encryption

All transactions are encrypted, ensuring the highest level of security for sensitive customer data.

4. Payment Processing & Integration

Neobanks often need to integrate various payment services and gateways to provide a comprehensive financial ecosystem; managing multiple integrations can be complex, time-consuming, and prone to errors​.

Integration with Legacy Systems

Neobanks often need to integrate with legacy banking systems, which may be outdated and can lead to compatibility issues, data inconsistencies, and delays in processing payments.

Scalability

As neobanks grow their customer base, they must ensure that their payment processing infrastructure can scale efficiently to handle increasing transaction volumes without compromising performance or reliability.

Compliance with Regulatory Standards

Neobanks must comply with various regulatory standards governing payment processing, such as PSD2 in Europe or ACH rules in the United States. Compliance requires robust security measures, data protection protocols, and transaction monitoring systems.

User Experience

Neobanks must prioritize user experience in payment processing, ensuring that transactions are seamless, intuitive, and secure across various channels and devices. This requires investing in user-friendly interfaces, fast transaction processing, and responsive customer support.

API Integration

Neobanks often rely on APIs to integrate with third-party services, such as payment gateways, merchant processors, and financial aggregators. Ensuring smooth API integration requires standardized protocols, robust authentication mechanisms, and comprehensive documentation.

Payment Infrastructure Costs

Building and maintaining payment processing infrastructure can be costly for neobanks, especially if they need to invest in proprietary technology or partner with third-party vendors. Managing payment infrastructure costs while delivering competitive pricing and value-added services is a significant challenge.

Routefusion’s unified API simplifies the integration of various payment services, providing a seamless experience for both neobanks and their customers. Key benefits include:

Single Integration Point

Neobanks can access a wide range of payment services through a single API, reducing the complexity and time associated with multiple integrations.

Scalability

As neobanks expand their services, Routefusion’s API can easily scale to accommodate additional payment functionalities and volumes​.

Ready to see Routefusion in action? Book a demo today.

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