Cyber Security in Fintech

Posted on June 6th, 2022

The evolution of the internet since globalization has witnessed very dynamic changes. The advent of smartphones especially has been the root of the transformation of the internet. Studies have shown that in a minute, more than 4 billion users access the internet for various reasons like shopping, searches, social media, and fintech-related activities.

The upsurge in the use of the internet and its accessories has led to an upheaval in the financial sector. People worldwide are forcibly having to stay cautious 24*7 about their data and personal information staying protected with the appropriate parties.

Cyber security is an essential unit in the fintech industry surrounding the security and safety of customer and company information and data. The number of cyber-attacks on fintech providers has grown aggressively; data and information being priceless assets in today’s world are the key incentives for hackers or malevolent parties. Anybody having access to personal and sensitive information has invaluable leverage against the vulnerable party. 

Ranging from company financials to customer information, all fintech firms have access to very detailed, comprehensive, and critical data. This puts the fintech companies at great risk of getting hacked. Any lag in terms of data protection and privacy could not only result in financial damage but can also defile the company’s reputation completely.

The Benefits of Cyber Security

Regulatory Compliance

Because of the relentless growth in the fintech sector, a very robust and evolving regulatory framework has been set up at the international level. It has become mandatory for all fintech firms that meet some specific requirements created by the General Data Protection Regulation (GDPR) to comply with the regulations and guidelines outlined by GDPR. Such regulations are extremely stringent, and any lag from the company can even lead to its closure. 

Financial Data Protection

Financial information is sensitive. To tackle issues concerning financial data protection, the Payment Card Industry Data Security Standard (PCI DSS) has mandated fintech companies to comply with certain policies and standards to ensure additional security. For fintech companies, such policies and regulations create directive pathways to follow, making it slightly easier for them to provide data protection and security. However, such stringent and mandatory practices also demand more resources and investments from the company, as cyber security becomes an unavoidable and independent department that goes along the way.

Company Reputation

The majority of the data that any fintech company acquires from its customers is very sensitive. Any oversight in this respect can jeopardize the company’s future. Hackers and evil parties are always on the lookout for companies that either have failed to follow the regulatory guidelines adequately or have mistakenly left any lags. Such gaps in the company can damage its reputation catastrophically and eventually put its future at risk.

Cyber Security Issues in Fintech

Since the onset of fintech, the partnership between traditional financial institutions and fintech services providers has multiplied rapidly. Such partnerships obligate easy transfer of data and information between the two parties. If either of the party fails to monitor and regulate their procedures, it could lead to multiple complications. 

According to one study, less than 50% of fintech firms invest in security and data protection. More than 90% of fintech companies at one point had failed in identifying the root causes of data breaches in their systems. Approximately two-thirds of the fintech had stored data in an unencrypted format, compromising the level of security even further. One-fifths of the passwords chosen by customers to login into their fintech portals could be hacked and revealed because of a lack of proper authorization and regulations. 

Such studies have continuously highlighted the foul side of the sudden upsurge of fintech. With personal and financial data floating on the internet, it is a matter of immense concern for all customers. 

During the pandemic, the fintech industry got propelled to a broader reach, where people had to adopt alternatives to customary banking methods. Because of so many people becoming aware of fintech and adapting to the changing environment of the financial world, the strictness in the regulations and standards has escalated, bringing some decorum to the dynamic interplay of fintech.

Main Underlying Reasons for Cyber Threats

The main reasons identified after studying several individual fintech cases and scenarios are:

  1. Unsafe Market Practices – Before the introduction of fintech, people all over the world had become accustomed to basing their transactional and financial affairs on trust and integrity and payment was mostly dealt in cash. With the emergence of smartphones combined with the increase in the number of middle parties involved in one transaction, the number of opportunities for hackers has grown. People leaving their accounts logged in, sharing their one-time passwords on phone, or even sharing their credit/debit card information over the phone have spiked the percentages of hacking.
  2. Rapid Automation – With more people valuing fintech services and the convenience that comes along with them, the need for automating simple processes has gone up. Streamlined operations put the entire system at risk if the automation doesn’t take cyber threats into account. Keeping up with fintech regulations, while staying dynamic in their services is a challenge many fintech firms face.
  3. Competition – The rapid increase in demand for fintech services has resulted in intensified competition levels. Fintech startups all over the world are trying to bring down their cost and increase their services. This catapults the system into the unstable ground. To lessen costs, firms try and cut down on their investments, including security. Apart from this, innovation is cruising globally empowering new startups to come up with innovative ideas and technology, which is immediately floated in the market, without any exhaustive testing of its data protection and security gaps.

 

Such monumental issues need strictness and obligatory regulations and policies to bring back the lost balance. The fintech environment is ever-changing, and with such dynamic evolution, it becomes highly imperative to put some restraints and bind uncontrolled factors from causing serious damage. 

 

Cyber threats have been on a rise in the past few years, but cyber security has now become an essential practice that has successfully lessened the number of opportunities hackers and malevolent agents get to exploit the system. With such stringent measures becoming mandatory for new and old fintech firms, the fintech market is finally settling into good shape.

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