What is Cybersecurity?
Cybersecurity, also known as information technology (IT) security, or electronic information security is the multitude of technologies, framework and processes used to protect computers, servers, electronic devices, systems, data, and network from malicious attacks, damage, or unauthorized access.
Cybersecurity can be distinctly categorized into five different types:
- Critical Infrastructure Security
- Application Security
- Network Security
- Cloud Security
- Internet of Things (IoT) Security
As the FinTech industry grows, the cybersecurity sector is also growing to meet the needs and demands of FinTechs to ensure that solutions are being developed. With innovations like Artificial Intelligence and Machine Learning have become the standard of fintech cybersecurity, it has helped to build stronger consumer trust in FinTech products and services. FinTech subsectors like Blockchain and RegTech are also emerging as strong tools in FinTech cybersecurity and maximizing data security for the industry.
Why Is It Important?
With the evolution of technology and the increase of FinTech users globally, it has become a growing concern within FinTech companies to safeguard their processes and systems from any potential risks or threats. Especially in an industry like FinTech which relies on technology, cyber security has become a big part of it. FinTechs have strong access to large amount of sensitive and valuable consumer data (credit card information, consumer personal identifier and more) that are stored digitally which makes them susceptible to cyber-attacks.
The adoption of technology and digitalization has been accelerated by the pandemic as the reliance on mobile devices increased. In recent years, there has been numerous cyber-attacks resulting in huge financial losses and reduced consumer trust. In addition, many FinTechs have complementary applications to increase their user-friendliness which opens another avenue for cyber vulnerabilities depending on application’s design and code.
Cybersecurity Threats in FinTech
There are several types of cyber threats in FinTechs, the top ten common types of cybersecurity challenges in FinTech are:
- Malware Attacks
- Cloud Computing Security Problems
- Application Breaches
- Money Laundering and Cryptocurrency-Related Risks
- Identity Theft
- Compliance Requirements
- Scalability and Financial Problems
- The Balance of Convenience and Security
Malware attack is a cyberattack that is typically a file or code that can be transmitted over a network when a malicious software executes an illegal action that a hacker wants. Malware is an all-encompassing term for viruses, trojans and any other destructive computer program threats.
Cloud Computing Security Problems
With increasing number of financial services available in the market, it would mean that there is also an increase in customer data that can make the cloud a vulnerable place for attackers. Hence, there is a strong need for a reliable cloud provider that has a strong security approach to protect your FinTech and your clients.
As FinTechs uses applications for users to fill in their data and manage their finances, applications are one of the most common areas for cyberattacks. With access to your application, it makes it even more likely for hackers to gain access to the entire network. Vulnerability scanning and penetration scanning are critical in preventing it.
Money Laundering and Cryptocurrency-Related Risks
With the common belief of ‘crypto is the future’, cryptocurrencies have gained much traction in the FinTech industry. This has resulted in it becoming a major security challenge in FinTech. As the origin of cryptocurrency can be anonymous, this can be used as a loophole for money laundering and an entry point for data theft.
A recent phishing scam that happened in Singapore’s local bank that results in a loss of more than $13 million was a good example that these biometrics/passwords/OTPs can be easily replicated for hackers to siphon large amount of money. It is important for FinTechs to utilize more than one verification gateway to make penetration even harder for cyberattacks.
As an ever-changing industry, it is also expected that financial/compliance standards change from time to time as well. It is important to ensure that your FinTech is meeting the compliance requirements to prevent hefty fines or any security flaws. Failure to meet compliance requirements costs huge losses for companies more than the actual costs of hiring a compliance specialist.
Scalability and Financial Problems
Ideally, your FinTech should built to be able to scale easily in order to help you update your infrastructure easily. In addition, scaling and updating your FinTech infrastructure can be costly. However, these costs are negligible as compared to the costs you can incur when being non-compliant or attacked by hackers.
The Balance of Convenience and Security
There are often decisions that results in the trade-off between convenience and security. However, with the increase of regulatory entities and legal requirements in the FinTech industry, you should hire strong Risk and Compliance leaders who are able to make decisions that considers short term and long term benefits.
Best Practices to Counter Threat/Risks in FinTech
Cybersecurity And Compliance Should Be Your Priority
Right from the ideation stage of your FinTech product/service, security and compliance should be your priority as a FinTech startup. Startups often run into trouble when they don’t prioritize security and compliance and if your startup is at a critical growth stage when you face such problems, many startups find it extremely difficult to recover from such setback.
While security and compliance can be a difficult choice in beginning stages of a FinTech where budget is a huge obstacle, it is a necessary choice especially when operating in a Finance and FinTech industry.
By having a good budget set aside for security and compliance would help your startup build a strong and successful foundation that allows the product to grow. In addition, it is helpful when acquiring the necessary licenses when expanding into markets. It can cost a lot more and more complicated to implement certain processes when your FinTech become larger.
Your budget should include:
- Regular employee and management training
- Monitoring and updating of all your systems
- Having a strong in-house Risk and Compliance team
Monitor And Update Your Security Processes/Systems
Monitoring and updating your security are expected and logical but can be challenging if you do not have the right talent in your team. However, this is a necessity to ensure that you can detect any problems, as prevention is better than cure. Consistent monitoring and updating helps you to resolve any vulnerabilities in your system before they can be exploited by hackers.
Monitoring your FinTech software can be extremely technical as it requires it to be compliant with regulations yet secure, it is required to have a balance of both. You should ensure that your development team is focused on constant monitoring and updating to avoid tech debt and security vulnerabilities.
Besides doing the necessary on your processes and systems, hacks can still occur anytime when there is a potential vulnerability within your system. Threats can also come from the inside, for example when your employees click on a phishing link that gives an opening for hackers to work with. To stay prepared for such incidents, you should also educate your employees on the safe practices for digital work.
Hire The Right People
With the surge in the number of FinTech globally, the demand for experienced Risk and Compliance specialists has also spiked. While it might be tempting to outsource your company’s Risk and Compliance team to a third-party provider, having your Risk and Compliance team in-house is beneficial in mitigating risks and getting any vulnerabilities actioned immediately. Your Risk and Compliance team is focused solely on your company, while having an outsourced team would mean that they might have other clients’ needs to focus on as well. Your Risk and Compliance team will also have a stronger understanding to the company’s needs and demand which allows them to assess potential threats and determine business decisions based off your company’s strategy.
We have spoken with many early stages FinTech startups, and we noticed the common reasons cited to outsource their security options, 1. the difficulty of finding the right specialists and 2. the perceived savings of outsourcing. Storm2 have found successes in connecting emerging startups to the right Risk and Compliance talent due to our strong FinTech network of professionals who have the right experiences and skills to help you build a strong team for success.
However, by outsourcing your security team, it might not always equate to cost savings as they can be paid by the hour which can become a pricey option when a major cyber incident occurs. In addition, several of our clients noticed that by having their Risk and Compliance team in-house at an early stage helped them obtain the necessary licenses much quicker as their processes are already in place with the help of their team.
Reduce Complexity of System
Having a complicated system makes it difficult to manage and identify vulnerabilities. Thus, it is important that your FinTech project stay focused on core business requirements and core functionalities to ensure that your software isn’t overcomplicated. Limit your complexities by optimizing infrastructure providers and third-party services while ensuring your tech meets the regulatory and market requirements of the FinTech market.
Securing The Best Risk and Compliance Talents
With technological threats and risks becoming an evident challenge for FinTechs, we know how important it is to secure the right Risk and Compliance talents. Our team of specialized consultants are skilled to connect the right professionals to emerging FinTechs to help them scale and succeed. Contact us now to find out how you should start scaling your Risk and Compliance team to help your FinTech stay one step ahead of any potential vulnerabilities.