Cybersecurity challenges in FinTech are potent enough to pose a systematic risk to the sector, as evidenced by some of the most high-profile cyber attacks that have impacted critical economic infrastructures. As a result, important company data may be compromised, hardware may be intentionally destroyed, and services may be adversely affected.
From October 2021 to September 2022, financial and insurance organizations were most frequently targeted by malware attacks, which accounted for approximately 40% of attacks worldwide. The second most common type of attack was network and application anomalies, affecting 23% of organizations, followed by system anomalies, which affected 20%. ~ Statista
Given the pervasiveness of cybersecurity threats, virtually all components of the FinTech ecosystem are vulnerable, including technologically advanced financial institutions, FinTech startups, and monetary clients.
This blog aims to uncover various cybersecurity challenges in FinTech that confront the sector.
6 Cybersecurity Challenges in FinTech Industry
The FinTech industry has grown exponentially over the past few years, with many startups entering the market and established financial institutions adopting new technologies. While this growth has brought numerous benefits, it has also presented several cybersecurity challenges that FinTech companies must address to protect their customers’ data and ensure the integrity of their transactions.
Here are six cybersecurity challenges faced by the FinTech industry:
- Malware Attacks
Malware remains the top cybersecurity threat in the digital landscape, with hackers continuously enhancing their techniques to make it more challenging to detect and eliminate. Unlike other types of cyberattacks, malware can infiltrate a system through multiple entry points, such as email attachments, third-party software, malicious websites, and pop-ups.
- Identity Theft
Banks and financial institutions often rely on authentication methods such as biometrics, one-time payments, and passwords to ensure security and confirm identity. However, these methods are not foolproof as they can be replicated, allowing hackers to steal significant sums of money. While these techniques are useful, banks and FIs must employ various verification gateways based on different principles to prevent intrusion.
- Money Laundering Risks
Cryptocurrencies have emerged as a significant cybersecurity concern in the modern financial landscape, given their widespread adoption in recent years. The anonymous and decentralized nature of these digital currencies makes them susceptible to exploitation for illicit activities such as money laundering, with the sources of the funds often being difficult to trace.
Given these risks, banks and FIs that handle cryptocurrencies must exercise caution and take appropriate measures to mitigate potential cybersecurity threats.
- Third-Party Risks
Many FinTech companies rely on third-party vendors for services like payment processing or data storage. These vendors may have cybersecurity weaknesses, which can compromise the FinTech company’s data and systems. FinTech companies must conduct thorough due diligence on third-party vendors and ensure adequate security measures are in place. Manage vendor risk by creating a vendor risk management policy.
- Insider Threats
Insiders, such as employees or contractors, can pose a significant cybersecurity threat to FinTech companies. They may intentionally or unintentionally compromise sensitive data or systems, leading to data breaches or other cybersecurity incidents. FinTech companies must have strict access controls and employee monitoring to prevent insider threats.
- Compliance
The FinTech industry is subject to various regulations and standards, such as the General Data Protection Regulation (GDPR), and the Payment Card Industry Data Security Standard (PCI DSS).
Compliance with these regulations is critical to protect consumer data, prevent financial crimes, and promote transparency in the financial industry. FinTech companies must comply with all relevant regulations and standards to avoid penalties and reputational damage.
Need help with compliance? CyberArrow can help.
Cybersecurity Best Practices for the FinTech Industry
Here are five best practices FinTech companies can follow to stay ahead:
- Implement authentication measures: Implement strong authentication measures to ensure that only authorized personnel can access sensitive information. This can include two-factor authentication, biometric authentication, and password policies that require regular updates and complexity.
- Regularly assess and update security protocols: Conduct regular security assessments to identify potential vulnerabilities and update your security protocols accordingly. This includes patching software and systems, monitoring networks for unusual activity, and implementing firewalls and intrusion detection systems.
- Secure data storage: Ensure that data is stored securely, whether in-house or through a third-party provider. This includes using encryption for sensitive information and implementing access controls to restrict data access to authorized personnel.
- Leverage AI, ML, and Analytics: Make use of AI, ML, and analytics tools to detect financial fraud, security threats, emerging risks, unauthorized data access, and anomalous activities. By leveraging these technologies, you can improve their ability to detect and respond to cyber threats, ultimately protecting assets and customers.
- Enable continuous threat monitoring: As the BFSI industry is a prime target for cyber attackers, you must remain vigilant and continuously monitor for threats. Traditional signature-based detection techniques can result in costly mistakes. Instead, leveraging advanced methods like global threat intelligence, contextual awareness, and custom rules can detect and prevent complex threats.
Manage FinTech Compliance with CyberArrow
One of the primary challenges for FinTech companies is managing compliance with a rapidly changing regulatory landscape. CyberArrow helps companies stay on top of these changes by providing real-time updates on regulatory changes, tracking compliance activities, and automating the compliance process.
CyberArrow is a compliance automation platform that helps FinTech companies manage their compliance requirements. The platform provides a comprehensive solution for managing compliance workflows, automating the documentation process, and ensuring all compliance activities are tracked and recorded.
Schedule a free demo and get started with CyberArrow Compliance Automation
Frequently Asked Questions
- What are the cybersecurity challenges in FinTech?
Cybersecurity challenges in FinTech range from fraudulent transactions, identity theft, hacking, and ransomware to insider threats and phishing attacks. As FinTech companies rely heavily on technology to facilitate transactions and store sensitive data, they become vulnerable to cyberattacks.
- What is the role of FinTech compliance in the financial industry?
FinTech compliance plays a critical role in the financial industry. It protects sensitive financial information, secures transactions, and practices transparent business processes.
- What are some FinTech compliance regulations?
Here are some common FinTech compliance regulations:
- General Data Protection Regulation (GDPR);
- Know Your Customer (KYC) requirements;
- Payment Card Industry Data Security Standard (PCI DSS);
- Anti-Money Laundering (AML) regulations;
- Securities and Exchange Commission (SEC) regulations.
