Nowadays, Fintech is one of the fastest-growing industries in the world. Fintech firms use technology to offer alternatives to traditional banking through Robo-advisors, online loans, and cryptocurrencies. These tech-focused financial services firms have been so successful because they provide improved user experience, more advanced services, and more convenience. While these firms offer a diverse selection of financial services that constitute the fintech world, they face one common problem: cybersecurity.
Most fintech companies have inadequate safeguards, which creates vulnerabilities and allows hackers and other online threat factors to access and expose their data. A lot of users realize this and secure their accounts by encrypting their network, setting strong passwords, or setting up two-factor authentication. However, fintech companies should be the ones to ensure that their customers’ privacy is protected.
If they want to survive, fintech firms must make security, in all its aspects, their top priority. The fintech industry, in its entirety, must adopt a proactive approach to cybersecurity and put in place robust countermeasures to mitigate or prevent serious threats.
But for them to be able to do their best to protect themselves and the consumers, fintech firms need to be familiar with the various cybersecurity challenges in the industry. Below are some of the most common cybersecurity challenges facing fintech firms at the moment.
Cloud-Based Security Risks
The fintech industry is heavily reliant on cloud-based solutions. Cloud computing is the backbone of fintech services, from digital wallets to secure online transactions to payment getaways. Financial services providers need to make sure that they maintain the security and confidentiality of financial data stored in the cloud. Cloud-based solutions can be a convenient and secure way of storing sensitive financial data.
However, fintech firms need to ensure that they work with efficient cloud computing service providers. Otherwise, these companies may find themselves dealing with significant data losses. If your cloud storage provider does not have adequate security measures in place, hackers can gain access and steal or corrupt sensitive financial data. The trick is to be extra careful when choosing your cloud services provider.
Integration Challenges
Traditional financial institutions rely on fintech firms to boost their efficiency, reduce operating costs, and expand their list of products and services. To leverage the technology of fintech, traditional financial institutions must integrate their existing banking systems with tech-friendly fintech services. This integration includes the Application Programming Interfaces (APIs) between the two systems resulting in a wide range of problems.
Integrating these systems is bound to result in incompatibility issues and security challenges. The limitations of legacy banking systems are a common source of vulnerabilities. Combining two disparate systems without thorough testing makes it even harder to identify all potential sources of weakness in the system. Therefore, traditional financial institutions ought to upgrade their legacy banking systems and conduct thorough testing before integrating with fintech services.
Managing Digital Identities
Effectively managing the digital identities of individuals and organizations is one of the biggest challenges fintech firms face as they grow and expand their services. There has been a drastic rise in the use of mobile-based services that utilize security codes and one-time passwords as a result of the introduction of digital tools in the banking and finance industry. The ubiquitous nature of mobile phones in the financial services industry has increased the risk of cloning digital identities.
Hackers can clone these devices and gain access to sensitive consumer financial data. Consequently, managing digital identities has become a massive challenge for fintech. Fintech firms and traditional banking services partners must re-evaluate their online security apparatus and address these risk factors. A faulty fintech system puts the identities of consumers at great risk of being compromised by malicious actors.
Over-Reliance on IoT
The Internet of Things refers to a series of connected devices that communicate with each other over the internet. They are also known as smart devices. Smartphones, smart TVs, smartwatches, cars, intelligent bulbs, etc. are all part of the Internet of Things. Fintech relies heavily on IoT to provide financial services such as online banking and payment processes. The problem is that IoT is not a very secure environment.
As a technology, the Internet of Things faces a myriad of cybersecurity challenges. The extensive use of smart devices in the fintech arena creates a wide range of vulnerabilities, thereby increasing the risk of cyberattacks on fintech systems. In light of rising malware attacks in the finance industry, the deployment of malware to attack and alter the functions of IoT devices in fintech is a major cybersecurity concern.
Third-Party Applications
As stated earlier in the article, banks rely on fintech firms to improve efficiency and cut costs for their customers. The interaction between traditional financial institutions and fintech firms will only continue to grow in the future. Many banks use third-party fintech applications to access their customers’ financial information in real-time.
The problem with some third-party applications is that they present a huge cybersecurity risk. If the software lacks efficient codes and foolproof security measures, it puts consumer data and other vital information at the risk of being stolen by hackers. Traditional financial institutions should consider risk assessment to eliminate third-party risks in fintech.
Data Breaches
In an increasingly digital world, data is one of the most valuable assets one can have. Hackers are aware of that, that’s why they will try every technique at their disposal to access and steal sensitive customer and institutional data from companies holding such data. Fintech firms, for instance, hold massive amounts of consumer financial data and are a prime target for hackers. Hacking and malware attacks are prevalent in the finance industry.
Incidences of data breaches increased drastically with the introduction of fintech systems in the banking and finance industry. The breaches target data, such as user information and payment card details, when consumers are making online purchases. Nowadays, hackers are increasingly targeting the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Fintech firms, banks, and other financial institutions use the SWIFT system to exchange vital financial data.
Fintech start-ups are growing at an astonishing rate. However, the momentum of the fintech industry is under immense threat from hackers and other malicious online actors. As cybersecurity threats proliferate and increasingly continue to pose a danger to fintech firms and those who use their services, fintech start-ups must plan for and build effective ways to address data privacy and data security from the get-go. By taking a proactive approach in cybersecurity, fintech companies will be able to protect institutional and consumer data effectively.
