Fintech is a blended word combining financial and technology and represents the next phase of the evolution of financial services, wherein technology-focused new companies and new market entrants innovate products and services in the financial sector. This sector has primarily two components: technology-driven innovation in the traditional banking sector, and the advent of new technology and delivery models enabling providing financial services. Fintech has transformed major aspects of the industry, including banking and capital markets, insurance, and asset and wealth management, in addition to financial funds. The start-ups in this domain can innovate at a rapid pace. Fintechs are creating new products and solutions at a very fast pace. As the governance matures and Fintechs hold extensive personal data and assets, the more likely it will get noticed by cybercriminals. As per the IBM report, the average global cost of a data breach in the financial sector is 4.9 M Eur per cybersecurity incident. ImmuniWeb claims 98% of the top 100 global fintech start-ups are vulnerable to major cyberattacks. As per BCG, Fintechs are 300 times as likely as other companies to be targeted by a cyberattack. The start-ups in this domain lack human and capital resources to manage security challenges; hence has a risk of data being accessed and breached to wrong use by the cybercriminals. Protecting critical data and assets becomes important for Fintechs to ensure complete cybersecurity.
The Main Cyber Security challenges for Fintechs are as follows:
- Complex Cyber Security vulnerabilities
Fintechs are completely dependent upon their installed Apps that can access the profile and critical data of users, more so during real-time transactions. Applications are more vulnerable to the assets towards security attacks, and once a cybercriminal makes an entry, it can successfully gain full access to Fintech’s existing infrastructure and the network used for services.
- Intricate System in Place to Render Services
There are multiple third-party systems used by Fintech, and in the process, these systems at times are interconnected, creating an enhanced risk of cybersecurity. It is because of different systems being used that there is an emergence of compatibility issues and additional risks in cybersecurity, and it is touch to identify these issues due to the complexity involved.
- Migration to Newly used Cloud Services
With the advent of Cloud systems, many Fintechs are migrating their operations onto cloud services so as to get enabled to provide seamless and quality services at a diminished cost. In the process, Fintechs are not able to secure the cloud operations completely, making it vulnerable like a traditional data centre is. Due to the complexity and load of data transactions in the cloud environment, it is difficult to provide security.
- Access gained by cybercriminals due to Human Error
Phishing attacks are the other areas to gain access to data, and human error is the main reason for this breach and leeway to cybercriminals, the reason being phishing attacks or lost or stolen devices.
- Vulnerable Digital Identities
Various services are accessed via mobile device authentication and authorization, and this is what is a gateway for malicious cybercriminals who may clone the identities.
- Privacy of Data
There is a scenario of user consent for data sharing resulting in Fintechs overcoming risks of the litigation (over misusing data) via legal ways.
- Compromising Security for Convenience
Fintech provides convenience and ease of access to avail services; the challenge is to compromise on the key security aspects at times.
- Involvement of Third Parties
Nowadays, Fintechs are using solutions from other players as well in addition to providing services from their applications. It becomes easier for cybercriminals to hack Fintechs without arousal of any suspicion when using third-party access, replicating a legitimate user.
- Not meeting Compliances
There is a need for Fintechs to adhere to compliance and regulatory requirements, which include appropriate licenses as well, the type includes Specialized Bank, Electronic Money Institution, Payment Institution, in addition to the need of GDPR & PSD2 compliance. Not meeting these and other important requirements is a serious breach resulting in greater risk.
- Increasing use of Electronic Gadgets & IoT devices for Transactions
The electronic space is growing, and there is an onset of more risks by this usage. There is an importance to be given to manage these vulnerabilities in addition to traditional & web-based security services.
- Consequent Data Security
At Fintechs, during digitization, it becomes challenging to maintain data universality and data security, right from the time of collecting the data to storing it.
- Malware Attacks
Malware attacks are the most prominent types of security issues that are prevalent with Fintechs in the global market. Society for Worldwide Interbank Financial Telecommunication (SWIFT) is more easily targeted.
- Money Laundering Risk
Fintechs often use a cryptocurrency that is not formally regulated by any set of standards and global regulations, leading to illegal money laundering.
Overcoming these challenges is critical to provide secure and smooth services by Fintechs.