Fintech is a new technology promising to revolutionalize traditional financial services. Tech-driven innovation and the emergence of new delivery models in the conventional financial services industry are the primary components of financial technology. The goal of this new technology is to give the consumer ease of access to investment opportunities, mobile banking, and personal financial data.
Fintech represents the next phase of the evolution of financial services. Fintech companies and tech-focused start-ups are innovating products and services that banks and other traditional financial institutions currently provide. Currently home to a broad range of financial services, fintech has been expanding rapidly in recent years. From payments, funds transfer, insurance, asset and wealth management to banking and capital markets, Fintech is changing all the aspects of financial services through innovation.
At an early stage, fintech firms are able to come up with new products and solutions at a rapid pace. But as these firms grow, hold more assets and personal data, they become more integrated with their clients. At this stage, the ecosystems of fintech firms are complex, highly connected, and they inevitably develop vulnerabilities that cybercriminals can exploit.
The rise of cybersecurity breaches in fintech threatens the momentum of the new financial services industry. The industry has seen huge breaches of consumer data in the last few years, leaving consumers susceptible to exploitation and identity theft. Data breaches by malicious black hats culminate in the loss of customers, bad reputation, and may even lead to the collapse of fintech firms. Here are the major cybersecurity challenges that fintech companies face.
- Cross-Platform Malware Contamination
One of the top cybersecurity challenges fintech companies face is the propagation of malware from one platform to another. Traditional financial institutions such as banks rely on fintech firms to enhance their interface as well as their banking and payment infrastructure. To do that, banks have to open their infrastructure to third parties and connect via APIs (Application Programming Interface). APIs facilitate communication between multiple enterprise applications, thus allowing seamless sharing of data between disparate systems.
The downside of integrating platforms in the financial services sector is that it allows cross-platform malware contamination. Hackers can create viruses that can infect and propagate from one system to another. API differences between the software systems create potential vulnerabilities in the infrastructure. Developers can embed security measures in the initial designs when integrating dissimilar systems can significantly reduce the risk of cross-platform malware contamination. Fintech companies can also reduce vulnerabilities and minimize compatibility issues by endorsing closer interface integration.
- Managing Digital Identities
Fintech firms provide a broad array of financial services, including payment services, wealth management, and banking. The goal of extending these services together is to provide an omnichannel financial experience to consumers. Consumers are able to access these services via authentication and authorization. Mobile devices equipped with fingerprint scanners and other biometric scanners are increasingly being used to provide authentication and authorization services. The ubiquity of the use of mobile phones as authentication devices in fintech has created a new security challenge for fintech firms.
Managing the digital identities of individuals and organizations has become a major challenge for fintech companies. The increased use of mobile phones in fintech has created an avenue for hackers. Hackers can clone digital identities and gain access to consumer data and other assets. Admittedly, digital identities have become more secure in the last few years. We no longer rely on conventional authentication mechanisms such as PINs and passwords thanks to code-generating apps, one-time passwords (OTPs), and biometrics. However, the ubiquitous nature of mobile device authentication amplifies the risk of cloning digital identities.
- Extensive Use of IoT Devices
Internet of Things (IoT), is a term used to describe an ecosystem of physical devices connected to the internet. Also known as connected devices or smart devices, these are ordinary objects we interact with daily such as smartphones, smart TVs, smartwatches, cars, smart bulbs, etc. Fintech is heavily reliant on the Internet of Things. The problem with IoT is that it opens up new sources of vulnerabilities in fintech systems. One of the major concerns when it comes to IoT security threats is cybercriminals using malware to alter the function of smart devices. The extensive use of IoT devices in fintech increases vulnerability to cyberattacks.
- Involvement of Third Parties
Fintech firms often use third-party services and solutions in addition to their own applications to provide financial services to their customers. Fintech companies collect massive amounts of data from users, which they analyze and use to generate insights. Some of this data includes financial and health information as well as personally identifiable information. Usually, fintech firms have to share this data with third parties in order to provide better products and services and improve access. Masquerading as legitimate users, cybercriminals can use third-party apps to access and steal consumer data from fintech companies.
- System Complexity
The complexity of the system of fintech infrastructure is a major cybersecurity risk. Fintech systems are complex, highly connected, which often leads to the development of vulnerabilities that cybercriminals can exploit. The integration of disparate systems through APIs is common in the fintech sector. Often, fintech firms and incumbent financial institutions integrate their interfaces, which can be a cybersecurity nightmare. API differences between the software systems create potential vulnerabilities in fintech systems. On top of the obvious cybersecurity challenges, combining systems that were created by different developers will certainly create compatibility issues. With such complex systems in place, it’s extremely difficult to point out potential sources of vulnerability accurately.
Fintech is one of the fastest-growing industries in the world. However, cybersecurity concerns are threatening the momentum of this fast-growing industry. There have been massive breaches of consumer data in the last few years leaving customers vulnerable to identity theft and exploitation. A lot of users choose to secure their data by downloading a VPN or encrypting their traffic. However, financial institutions should bear the responsibility to ensure that they have proper security and privacy controls to protect data and assets and guarantee cybersecurity for their customers.