All You Need to Know About Data Security and Compliance in Fintech
Technology is constantly evolving in all aspects, and one of them is Data Security. Fintech is just one of the industries undergoing constant change and updating their privacy, compliance, and security standards to match the growing needs of their customer base.
However, Fintech is one of the most challenging industries to leave your mark in terms of security and data compliance. There are too many challenges and a lot at stake. People are usually apprehensive when there are developments in the finance industry because they are putting their hard-earned money at risk. So, for something to finally pick up, people need to be sure that there are no security risks involved.
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Security and Data Compliance Challenges Faced by Fintech in the Present
When it comes to data security, Fintech has a long way to go. Yes, all financial institutions are going digital, and everyone is moving to the cloud. But how secure is it? Are all the mechanisms working smoothly regarding security, compliance, and data privacy? Fintech faces many challenges, and the challenges with data security are currently the most pressing matter. Some of these challenges include the following:
The Fintech industry is thriving in applications. The stronger and more trustworthy an application is, the easier people find it to switch to the application. And the application is where the users input their sensitive data like passwords and banking details.
The good news is that company-wide data breaches cannot occur on the user-facing side of the application. But with the rest of the system, if an attacker gains access to the application, they will quickly gain access to the entire network and be able to carry out a sophisticated and comprehensive attack on the company.
There are ways to prevent this, such as vulnerability scanning and penetration testing, but the threat always looms close.
The Volatility of Crypto
Cryptocurrency has gained a lot of traction through the years. Many people are enamored by the idea of crypto even now. But Fintech needs to be ready for the security challenges and threats that crypto has brought forth. Crypto transfers have been exposed at money-laundering fronts and even scams where people lose considerable amounts of money. This is because crypto transfers are now a common entry point for penetration and theft.
So if a Fintech platform tries to branch into digital currencies, there are already many suspicions raised. So this is an area that most secure Fintech platforms need to consider. The Fintech companies that have branched out into crypto only use secure platforms for trading to prevent all the shady business that could accompany it.
Any institution with a single verification method is at risk of data theft. Hackers need only a single password or credential to enter a user's account and gain access to everything they have. This becomes especially easy if the hackers use the individual's device as well, making it even easier for them to siphon money.
Even though this problem is coming closer to a solution with the help of multi-factor authentication and adaptive authentication, it is a risk at present.
Scaling a Fintech start-up is not easy, not even with the help of the cloud, which offers infinite scalability to pretty much every other industry. And the reason for this is also the sensitive nature of the data that Fintech developers deal with.
Scaling is necessary because as the start-up continues to grow, the infrastructure required to keep it up and to run will grow, mainly because the concerns regarding cyber security will continue to grow as the business evolves.
Shifting to The Cloud
Banking is shifting to the cloud. We can't say with certainty if cloud-based or Decentralized finance will completely replace traditional banking, but the shift has begun. Let's take Paypal, for example. It has revolutionized how finances flow internationally. Businesses have shifted to international platforms overnight because of how this one model of Fintech finally worked. And now, people are trying to evolve it and make similar platforms in their regions.
Modern Fintech is only one of many digital financial services we can see at present, though. Traditional banks are also already migrating to the cloud. Banks are an essential service currently and have been for many years now. This institution can only survive by migrating to the cloud and digitizing its services. Many banks that were initially against the idea of digital banking are also now adopting new technology simply because the possibility of becoming outdated is too real.
But building a new Fintech application or introducing a new concept in Fintech is, at present, one of the most challenging things you can do. Security and privacy concerns top the chart, but convincing people to give it a shot is not as easy as we want it to be.
There is a specific industry standard for all the different types of financial institutions you can run and the Fintech sector you are running needs to meet all the compliance requirements. This will also need a lot of updating and planning by developers and can pose a challenge for many.
The infrastructure needed to be successful in Fintech can pose many financial and planning-based hurdles for the team in question. Even if the institution has cracked how to scale its business, the infrastructural requirements will continue to grow constantly.
People want to access their applications on every platform, from phones to laptops and tablets. But the more devices you grant access to, the more vulnerable the account becomes. While one of the critical aspects of Fintech is the ease of access, there is no doubt that we can ignore the risks that come with it.
Application developers should only provide the option of multiple platforms once they have tested the application enough to know it is secure.
The World is Convenience-Oriented
Increasing convenience in banking and finance is what we want to move towards, but it is precisely this convenience that poses more and more security threats in the first place. The developers have to choose between convenience and security constantly. If a different app begins to offer both, the customer base will naturally migrate toward that. But this is also something Fintech will continue to work on until they find a reasonable solution.
How Common are Data Breaches in Fintech?
Cyber-attacks are currently threatening 98% of the top Fintech businesses in the world, and the Fintech industry is amongst the ten most attacked industries in the USA. However, it is not the most threatened industry by any means. Gaming and education have that lead.
But even now, in terms of cyber security and data privacy, Fintech has a long way to go. It is important to remember that data security is not a solution, but an ongoing process that needs to happen along with the development of the industry. Technological developments make it easier for attackers to find entry points into networks, so it is up to the security team to prevent any entry points from being formed in the first place. It is a constantly fought war between the attackers and the developers.
Whenever a developer fails to meet the mark in keeping the threats out, a data breach occurs and takes down a large chunk of the company. But because the threat of being attacked is always there, and even a second of lag in providing ample security can cause a lapse of the system, data breaches are still much more common than we would like them to be.
Data Regulations in Fintech
There are regulations and standards of data compliance that Fintech has to meet before the industry develops something usable and trustworthy. Some of the policies in place include the GPG13. This is the Good Practice Guide and has to do with the service providers in the UK. The guide focuses on security, policy, and intrusion detection, following which the application will meet the minimum standards to ensure this.
Other than that, we have the Act on the Protection of Personal Information (APPI), the Payment Card industry and the Data Security Standard (PCI DSS), and the Personal Information Protection Act (PIPA), which focuses on Fintech Security in South Korea.
Each country and branch of Fintech has its own regulations in place. As the technology develops, new policies and regulations regarding Data Compliance Fintech will likely continue to modify and evolve with them. For now, the Cyber security requirements greatly depend on the company's region and what service they are offering.
There is a challenge here, too, though. The documents have yet to be specific about the procedure to ensure protection for many data regulation standards. This leaves the company and the policymakers in jeopardy since they are both at a stalemate until someone fixes policies for them. And as policies need fixing, the compliance standards will only continue to evolve.
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How is Fintech Solving Data Compliance and Security Problems?
As we mentioned before, cybersecurity is not a solution. There is no single software or tool that the Fintech industry can use to get rid of all security concerns, and they have to implement specific steps to ensure that they can detect and repel any attacks that come their way. Even a single moment of not being on guard can result in a cyberattack, and most companies cannot figure out how to deal with that. Here are some of the steps that the industry is using to ensure data security and privacy in Fintech:
Data encryption is one of the most critical steps in protecting sensitive information. Encryption refers to coding data and making it unreadable without the help of a key that can decipher the messages. Some complex encryption algorithms include 3DES, Twofish, Tokenization, and RSA. The methods of encryptions using each tool are different, but the idea is the same. The greater the levels of encryption in your application, the more secure the information is.
OTPs, or One Time Passwords, are a PIN code the application generates and sends to the user via message or email. To gain access to the application, the user has to validate themselves by entering the PIN. OTPs are often used when a new device is added to the application. Usually, when you want to make a money transfer or log in to the application.
Many Fintech applications use short sessions that expire after a certain amount of time, like five minutes. After that, the application logs the user out by itself, making it much more difficult for an external party to hack the account.
Multi-factor authentication is excellent. It adds a layer of security and dramatically reduces the chances of a cyber-attack. However, more is needed. Especially when the user's device is stolen, multi-factor authentication can prove to be a more significant liability.
This is why we take a step further and implement adaptable authentication. This type of verification notices the user’s movement through the application in general. So whenever an activity that is out of the ordinary occurs, the system can detect suspicious activity and alert you. With adaptable authentication, the system gets to know the user, and when the user's behavior changes, the devices naturally notice something wrong.
Password leaks can occur in a myriad of ways and cause thousands of data breaches monthly. The only natural way to prevent this is by changing your password constantly. The more quickly a password changes and is replaced by something no one can guess, the more secure the data remains.
Many applications even force their users to change passwords after a short time to ensure an incident like that does not occur.
All Fintech applications have monitoring systems attached to them now. These systems help monitor the user's activity and can detect any suspicious activity, from failed login sessions to unauthorized access to the system. The system can even block the user to protect all the valuable data.
Role-based Access to Applications
There are different roles for every application. You have the administrators, the manager, the IT team, the support staff, and then the customer. It is now crucial for all Fintech applications to grant segmented access to people in different roles.
For the longest time, applications only had the user-facing interface and the backend developers. Security breaches are almost impossible on the user-facing end. Still, if the attacker finds an entry point anywhere in the rest of the system, they can quickly launch an attack, costing the organization a lot of money.
But with segmented access, even if the attacker does find an entry point in the rest of the system, they can be detected, and their attempts to breach data can be restricted to that segment alone.
With segmentation, organizations add the most layers of security to the segment with the most sensitive information, like credit card and banking credentials.
With monitoring systems in place, the system can also detect the lateral movement of an entity through the system if it occurs, stopping a cyber attack in its tracks.
What Does the Future of Fintech Look Like?
The future of Fintech does look bright. Banking and financial matters are becoming digital and will likely stay that way for a long time.
However, it is difficult to say what the industry's future holds. In terms of Data Security, Fintech has to continue to follow the best practices to stay relevant. Data compliance is the same since the industry will have to continue to update its regulation standards as much as possible.
There is immense potential in the industry to continue to evolve for a long time. Even though we have yet to understand data security entirely, Fintech is evolving with lightning speed and boosting security. While there is no way to say that companies will be able to thwart cyber attacks altogether at any point (mainly because the hackers won't stop trying!), we can say for sure that we have all the tools and resources in place to make the industry reach new heights all over the world.