What if you are told that under the facade of ostensibly thriving fintech industry, there exists a massive threat, i.e., cybercrimes, having the capability to overthrow entire system. Seems unbelievable, right? Because it’s unimaginable to most of us that there could be any threat to fintech companies whose very base lies upon the strong foundations of data protection and security.
From digital payments to online banking, from offering personal finance management tools to decentralized crypto services, the fintech industry has truly revolutionized the way we manage our finance.
However, this scenario is underlain by some massive threats to the industry, including data breaches, identity theft, fraud, and ransomware attacks. Let’s discuss some of these threats in more detail.
Cybersecurity breaches are fast becoming a norm in the global market, with each and every market player feeling the heat of these. According to a recent report released by IBM, one of the largest players operating in the tech market, 83% of companies across the globe saw at least one cyber breach during 2022.
Fintech companies are especially at the forefront of these ferocious attacks, most common among them being phishing attacks, whereby people are tricked into sharing their passwords and/or sensitive data through ingenious means. Ransomware attacks, in case of which cybercriminals encrypt important data in return for ransom, is also a common tool at the hands of scammers and criminals.
However, a continuous system update and utilization of reliable encryption techniques could aid in enhanced data security.
Data Privacy and Compliance Risks
In 2019, Capital One, a major fintech player, experienced a significant data breach that affected the records of more than 100 million customers. This incident proved to be a game changer in adoption of robust data privacy measures and led to a dramatic shift in companies’ behavior toward more stringent compliance with the industry protocols.
Fintech companies maintain highly secure and sensitive customer data, thereby binding them to comply with the regulatory requirements. These regulations standardize the collection, storage, and processing of personal data, failing which can result in significant data privacy risks.
In addition to data breaches, non-compliance with data privacy regulations can result in legal penalties and loss of business opportunities. For instance, in 2020, financial technology firm Robinhood was fined $65 million by the U.S. Securities and Exchange Commission (SEC) for misleading customers and failing to provide accurate information about order execution.
Another of the threats hindering the growth of fintech companies is the prevalence of fraudulent activities. Various fraudulent activities targeting the operations of these companies are meant to deceive the customers. One of the common means employed in this regard is identity theft, whereby the criminals can steal the personal information of the client that can lead to them impersonating the client and carrying out the unauthorized transaction.
The magnitude of the loss caused by the identity theft could be highlighted from 2021 Identity Fraud Study by Javelin Strategy & Research, which states that identity theft affected over 1.4 million consumers in 2020, resulting in losses totaling $13 billion.
Another common tactic employed by the fraudsters is the money mule scheme, whereby they recruit unsuspected individuals to transfer illicit funds on their behalf, making it difficult to trace the money trail.
Operational disruptions pose a serious threat to the fintech companies, for they can impact their ability to deliver seamless services. Cyberattacks overwhelm the entire system, causing severe operational disruptions and impacting the overall user experience.
Besides, another common disruption for the fintech firms could be system outage or downtime, where technical issues could render the system inaccessible to users, leading to customer dissatisfaction as well as financial losses.
Non-technical issues like natural disasters or power outages can also disrupt the operations of fintech firms, making them highly vulnerable to security and privacy risks.
Fintech companies mostly rely on third-party providers for different services, including customer support and cloud hosting. However, outsourcing the operational processes to third party entities can result in certain risks to the system, the most prominent among them being potential compromise of customer data by these external entities. If the external provider’s security measures are inadequate, they can have severe consequences for fintech.
Besides, a reliance upon these third-party providers for performing critical operational processes could result in limited control of fintech over the quality and reliability of these services, which in turn can affect the business operations besides impacting customer experience.
Social Engineering Attacks
With the rapid growth of fintech companies, one significant risk stands out among others: social engineering. Cybercriminals employ emotional deception tactics to manipulate individuals into revealing confidential data or engaging in actions that compromise their personal or business security.
Using techniques such as impersonation or pretexting, the scammers can pose as legitimate institutions or trusted individuals to trick the fintech users into sharing their personal credentials.
Social engineering attacks can also involve phishing email or messages that appear genuine but are designed to lure the users into clicking malicious links or downloading malware.
Fintech companies heavily rely on technology to deliver their services, making them susceptible to various technological vulnerabilities. The most prominent among these is software vulnerability. Failure to regularly update and patch software can leave systems exposed to different issues.
Another risk for fintech firms is weak authentication mechanisms, which can lead to unauthorized access and cause sensitive data to be compromised. Additionally, compatibility issues between different technologies can also introduce vulnerabilities that can be exploited by attackers.
The fintech industry’s rapid growth and innovation have revolutionized financial management, but it has also brought forth significant threats for both the companies as well as consumers. The companies should be vigilant against all these threats, including social engineering, phishing, malware attacks, data breaches etc. As the fintech landscape continues to evolve, advancements in AI, ML, and technologies like blockchain hold promise for strengthening fintech security measures.
At Veroke, we understand the unique challenges faced by fintech companies, and we’re here to help. Our team of experienced IT professionals is well-versed in safeguarding financial systems and mitigating risks for your fintech business. Together, let’s build a resilient future for your fintech. Contact us at email@example.com or visit our website at www.Veroke.com.