With cyberattacks becoming increasingly sophisticated, prioritizing cybersecurity is key to safeguarding customer data, ensuring compliance, and maintaining trust.
Although the fintech industry’s exponential growth has come with multiple benefits, it has also presented numerous cyber security challenges. Discussed below are four common cyber security challenges for fintechs.
Identity fraud or theft
Identity fraud is a common cybersecurity challenge for fintechs. A report disclosed that the rate of identity fraud cases in the fintech industry increased by 73% between 2021 and 2023. Cybercriminals can use the stolen data to make purchases, take out loans, and open new accounts. Identity fraud in fintech companies can lead to financial and non-financial consequences, including:
- Loss of client savings and possible damage to their credit scores
- Direct monetary losses, higher compliance costs, reputation loss, and increased expenses for insurance, security, and more for fintechs
- Severe international crimes, including drug trafficking, financing terrorism, and human trafficking
ID scanning technology allows fintechs to scan ID cards, facilitating accurate identity verification, which helps prevent identity theft.
Data breaches
Fintech data breaches happen when malicious actors apply manipulative technologies and strategies to gain unauthorized or unlawful access to sensitive, confidential information. They result in significant financial losses and loss of customer trust. Malware, phishing attacks, and weak passwords are common causes of fintech data breaches. Data breaches in fintech have various consequences, including the following:
- Operational disruptions: When a cybercriminal unlawfully gains access to a fintech company’s system, they can disrupt operations, resulting in system malfunction, downtime, and a decline in revenue
- Financial losses: The costs of Fintech data breaches cover payments for legal fees and remediation, as well as direct financial losses
- Loss of customer trust: Data breaches in fintech erode business reputation and customer trust
Encryption, multi-factor authentication, regulatory compliance, and dark web monitoring are techniques fintech companies can use to prevent data breaches.
Insider threats
Insider threats are a major concern in fintechs. They originate from former or current business partners, employees, or contractors and can cause severe damage. Since insiders usually have authorized access to sensitive data and systems, insider threats aren’t easy to detect and prevent. Examples of insider threats include the following:
- Data theft: Malicious actors can steal financial data, sensitive client information, trade secrets, and other confidential details and sell them to your competitors. Implementing data encryption, access controls, and regular monitoring and auditing can help mitigate data theft
- Privileged user abuse: System administrators and other privileged users have excess access rights, which makes them possible insider threat sources. Applying techniques like privileged access management and stringent access controls can help prevent the risk of insider threats
- Fraudulent activities: Insiders can manipulate financial records, create fake accounts, or engage in other fraudulent activities. Segregation of duties and automated monitoring can help prevent these issues
Emerging technologies
Although technological innovations present opportunities for fintechs, they come with cybersecurity challenges. Emerging technologies, such as cloud computing and artificial intelligence, introduce new cyber security threats and vulnerabilities. They may have security defects or be attacked by sophisticated cyberattacks.
Evaluating the security consequences of adopting emerging technologies and implementing suitable measures to safeguard against emerging threats can help prevent the cybersecurity challenges associated with innovative technologies.
Endnote
Since fintech companies handle significant customer data, they’re highly susceptible to cyberattacks. Familiarizing yourself with the common cyber security challenges for fintechs can help implement the necessary safeguards to enhance security.