Fintech Cybersecurity: Challenges, Best Practices, and Future Trends

In 2017, Equifax – a major credit reporting agency – experienced one of the largest data breaches ever. This cyber attack exposed the personal information of 147 million people. The fallout was huge – Equifax’s stock dropped by 35%, and they faced a lawsuit resulting in a $700 million settlement. This breach seriously hurt their reputation.^[1]

This is just one of many examples illustrating the critical importance of data security, especially in the financial industry. If you’re planning to create a digital product in this sector, it’s in your best interest to make data security a top priority.

What is cybersecurity in fintech? 

Fintech cybersecurity challenges

The fintech sector faces numerous threats that can significantly impact the integrity of financial services. Understanding and addressing these challenges is crucial for maintaining a safe environment for your businesses and customers.

Insider threats

These are threats that come from within an organization. This includes threats, for example, from employees, contractors, or business associates, even former ones. These threats can be intentional, such as when an irritated employee wants to harm the company in revenge. They may also be unintentional, such as when an employee gets a phishing email and clicks on a malicious link. After that, the attackers can access the company’s sensitive data as if they were inside the company.

Compliance with regulations and laws

Regulatory compliance means that a product or company adheres to laws, guidelines, regulatory requirements, and specifications. It depends on the kind of business which of them are relevant. In the fintech sector, this often involves financial regulations to protect consumers. They are often complex and can change very often.

Some examples of such regulations involving the fintech industry are:

• GDPR – General Data Protection Regulation. Laws in the EU about personal data sharing, processing, and transfer.
• PCI DSS – Payment Card Industry Data Security Standard. A standard for companies that handle credit cards.
• PSD2 – Payment Services Directive 2. A directive that regulates payment services authentication in the European Union.
• BSA – Bank Secrecy Act. A law in the USA aiming to detect and prevent money laundering. It requires fintech companies to work with government agencies.
• The Equity Act – A law in the UK that prohibits discriminating against customers with disabilities.

If your product is not compliant, you may encounter severe consequences. This includes fines or even a loss of license to operate. Thus, fintech companies have to invest in compliance programs. This can involve employing compliance officers and training staff on regulatory changes. Compliance isn’t just about avoiding penalties and financial losses. It’s primarily about maintaining trust with customers and stakeholders.

API vulnerabilities

APIs enable different software systems to communicate with each other. In the fintech services, they are very common, such as when you use a payment gateway to pay for your shopping. APIs are how the online shop exchanges the transaction details with the bank. If the API is not secure, the attackers can get access to the data sent through it. They can also use it to send malicious data to the bank or a mobile device. This is an easy way to cause financial losses on both the customer and business sides.

To mitigate API vulnerabilities, you can perform penetration testing. Regular security audits can also help in that matter. These can assist you in identifying and fixing API issues in your fintech apps. It is important to act before cybercriminals can exploit these vulnerabilities.

Cryptojacking

Cryptojacking refers to mining the cryptocurrencies on a victim’s devices. Mining software runs in the background and may even run without being noticed by users. They can be installed on both mobile devices and laptops, as well as on the servers. In the context of fintech firms, cryptojacking can lead to financial losses and system slowdowns, impacting the performance of financial applications. To mitigate the risk of cryptojacking, fintech companies should install robust security measures, such such as regular security assessments and system performance monitoring. These can detect and prevent unauthorized activities.

Data breaches

Data breaches are a significant risk in the fintech sector. They affect the security of sensitive financial data. Due to such breaches, attackers gain access to financial records and other sensitive information, which can result in financial fraud and identity theft. Fintech companies have to introduce robust security measures and protocols to safeguard sensitive financial data. This includes, for example, secure data storage and regular security assessments and audits. Along with this, companies can also deploy continuous monitoring for potential threats, and utilize robust encryption protocols.

Additionally, strict access controls and multi-factor authentication can secure sensitive data even more. In the case of a security breach, data recovery measures are also important. They can mitigate financial losses and reputational damage.

DDoS

DDoS stands for Distributed Denial of Service. In this attack, many devices connect to the target server at the same time. The frequency of requests is far beyond the expected limits that servers can handle.

As a result, the product becomes overloaded and unavailable to users. This can disrupt fintech services, resulting in financial losses and reputational damage.

DDoS attacks can also simply be distractions from other malicious activities, such as data breaches. So, fintech companies need to implement robust security measures, including  continuous monitoring of network traffic. They should also have incident response plans. All that can increase the availability and reliability of their services.

Best practices for ensuring fintech security

Multi-factor authentication

One of the best security practices is multi-factor authentication (MFA), which requires users to provide two or more verification factors before granting access. These factors include several things. Firstly, something the user knows (like a login and password). Secondly, something the user has (like a smartphone). And, finally, something the user is (like a fingerprint or other biometric data). MFA reduces the risk of unauthorized access significantly, even if one factor (like a password) leaks. In the fintech sector, MFA is an essential layer of security. It protects from potential cyber threats. Both the company’s employees and its customers can use MFA.

Regular security assessments and audits

Security assessments, audits, and penetration tests are very important elements of fintech cybersecurity. They involve a systematic evaluation of an organization’s security measures, and help identify potential vulnerabilities. With regular audits, you can monitor if your product complies with various rules, including regulatory standards, internal policies, and industry best practices.

In the fintech sector, regular security assessments and audits can help prevent data breaches, and maintain customer trust. By using regular, proactive audits and tests, you can identify weaknesses before cybercriminals can exploit them.

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Employee training

Employee training is a critical aspect of ensuring fintech security. It consists of educating employees about the latest cybersecurity best practices. What’s more, it also includes the company’s security policies and procedures. A key area to cover is social engineering attacks, which are about convincing individuals to reveal confidential information. Such attacks can also involve tricking them into performing actions that compromise security. They often exploit human vulnerabilities rather than technical ones, making them difficult to prevent with technical measures alone.

Regular training sessions help employees recognize and respond to social engineering attempts. They may include phishing emails or fraudulent phone calls. By investing in employee training, you can reduce the risk of security incidents caused by human error or manipulation.

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Regular data backups

Regular backups are a fundamental practice for ensuring fintech security. Backups are copies of data and it is important to store them in a different location than the original, primary data storage. In the case of a security breach or a system failure, the original data may be lost. You can then restore them from the backups.

Regular backups minimize the risk of disruption to business operations. In the fintech sector, regular backups not only protect against data loss but may be required due to regulatory compliance. The backups should also be tested regularly to ensure that you can successfully restore the data if needed.

Emerging technologies and fintech security

Financial institutions nowadays use a variety of technologies, like Artificial Intelligence (AI) and Machine Learning (ML). They have revolutionized financial services, helping in fraud detection, threat intelligence, and transaction analysis. Yet, they can also introduce new cybersecurity risks. For instance, attackers may manipulate AI and ML models. After that, they can make incorrect predictions or decisions. That threat is called an adversarial attack.

Additionally, these technologies rely on data, raising concerns about data privacy and protection. Sensitive financial data for training these models may not be secured and could be subject to data breaches. Furthermore, the complexity of AI and ML systems can make them difficult to understand. So, fintech companies need to implement robust security measures. This includes, for instance, secure data storage, strict access controls, and regular security assessments.

The future of fintech security

The future of fintech security depends on several emerging trends. Artificial Intelligence (AI) and Quantum Computing are the most promising ones. AI nowadays can detect and prevent fraud. It also identifies anomalies in transactions. By learning from historical data, AI can predict future security threats.

Quantum computing uses quantum mechanics to process information. It can revolutionize fintech security. Encryption methods using quantum mechanics are impossible to break with traditional computing methods. However, it could potentially break existing cryptographic systems.

There is one more trend not related to any specific technology, which is the increase in privacy laws. These laws aim to protect the personal information of individuals and require fintech companies to implement robust data protection measures. Non-compliance can result in fines, which may grow in the future. As such, fintech companies will need to stay compliant with these evolving laws.

One possible future trend in fintech cybersecurity could be the rise of DeFi, or Decentralized Finance. This represents a shift from traditional, centralized financial systems to peer-to-peer technologies. DeFi platforms are attractive targets for cybercriminals because of the significant value often locked in these protocols. Security issues in DeFi can be very complex, potentially involving smart contract vulnerabilities. Therefore, they may require more advanced security measures and highly qualified personnel.

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Fintech app development with Droids On Roids

At Droids On Roids, we’ve been creating high-quality digital products for clients globally since 2011, with fintech being one of our key specialties. For this sector, we’ve developed applications such as Sarwa, Sadapay, Metapro, Honeybee, Your Card, and Cellery. 

We implement the highest security standards and educate our clients on the importance of robust cybersecurity measures. So, if you have a digital product idea and are seeking a partner who prioritizes safety, contact us for a free consultation. We’ll guide you on the best strategies to make sure your product is highly secure.

Final thoughts on fintech security

Fintech security is a critical aspect of financial products. The sector faces many challenges, from data breaches and phishing attacks to regulatory compliance. However, you can manage these risks. Robust security measures, regular assessments, and a proactive approach will help you achieve that.

Key takeaways include the need for employee training, and don’t forget about regular backups. The rise of DeFi also highlights the evolving nature of fintech security. Keep in mind that cybersecurity is very important. It helps you maintain customer trust and ensure business continuity.

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