Fintech & Cybersecurity: Key Risks and Solutions

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Guest Post | July 21, 2020

Cybersecurity risks and solutions - Fintech & Cybersecurity: Key Risks and SolutionsFintech companies have dramatically improved financial services worldwide. The sum of innovative technologies is offering groundbreaking banking and financial services to both consumers and B2B clients. In terms of funding, payments, investments, and other processes, the financial sector has never been more streamlined.

But in line with increased performance, there is increased risk. The fintech industry is on a quest to ensure optimal cybersecurity and safeguard customers’ financial and personal data; as well it should because it seems every month we hear about another major data breach.

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While we may pat ourselves on the bank and point to the positive aspects of fintech and open banking, we shouldn’t lose sight of the fact that critical technical dependencies on third parties in the integrated fintech ecosystem have made it uniquely vulnerable to several cybersecurity risks.

Here we shed light on some of those risks and go over a few actionable solutions to improve the landscape.

 

Key Fintech Cybersecurity Risks

Malware Attacks and Hacking

If you want to categorize cybersecurity risks in the fintech industry, malware attacks and hacking are among the most prominent. In one key example of the latter, bad actors are launching sophisticated cyberattacks on SWIFT infrastructure, a financial telecommunication system used worldwide by banks and other financial institutions to transfer transaction-related information.

The “insane” (as Wired termed it) $81 million bank heist incident in Bangladesh incident took place because of exploitable vulnerabilities that are prevalent in many banks. A similar attack is probably a matter of time as the risk here is directly related to financial operations such as domestic and international funds transfers.

 

Lack of Regulatory Compliance

The rapid rise of fintech companies is associated with an overall transformation in information technology and related fields. Legacy banking regulations don’t cover technological risks in a comprehensive manner, which means the fintech industry is largely unregulated.

Regulatory bodies are catching up but there is a lot left to cover to minimize the risk. In the meantime, a lack of regtech means organizations at risk of breaches include both those handling financial and personal data and peer to peer loan data.

 

Digital Identity Theft

In the fintech ecosystem, most applications and financial services are web-based with iOS or Android mobile devices at the front end. Fintech technology uses one-time passwords (OTPs) as security codes to verify customer authenticity during online marketplace transactions. Unfortunately, these OTPs are easily accessible by cyber attackers and critical information is easily traceable by bad actors. Faulty fintech software solutions are mostly liable in these cases.

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The risk of digital identity theft is directly related to online marketplaces. When a customer shares sensitive financial and personal information on online platforms or in e-banking solutions, this information is far too easy to garner.

 

A Few Solutions

Reputable Third-Party Service Providers

The fintech industry is largely dependent on various third-party service providers, from malware and cyberattack protection, cloud computing, to digital data services, to name just a few. Many IT risks arise due to weak software management by third-party service providers. Always go for reputable providers for fintech solutions as it ensures greater safety and security across the board.

 

Ensure Regulatory Compliance

Regulatory compliance for the fintech industry is still scant, particularly when compared to the size of the landscape. However, applying what compliance is available should save fintech companies from cross-border legal issues, potential loss of reputation, and the often hefty regulatory fines imposed by jurisdictional authorities. At the same time, regulators should review regulation perimeters routinely. Some key regulations to follow include:

  • GDPR — Worldwise
  • PSD2 — European Union
  • eIDAS — European Union
  • PCI DSS — Worldwide
  • NCUA — Americas

 

Robust E-banking Security Architecture

In order to maintain customers’ privacy on web applications, online marketplaces, and when using e-banking solutions, banks and financial institutions should periodically update their security framework and architecture. This will mitigate some of the risk factors and pave the way for effective fintech implementation.

In addition, the industry as a whole needs to do a bit more to protect application users on-site. Companies can’t always rely on users to download a secure and effective VPN so apps should have VPN protection in place to secure connections and prevent unauthorized access. System firewalls, antivirus, and other steps are fundamental to stopping breaches.

The bottom line is that fintech will never be free from security vulnerabilities. However, by fostering appropriate security measures the industry can stay strong.

 


NCFA Jan 2018 resize - Fintech & Cybersecurity: Key Risks and Solutions The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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