Cybersecurity in Fintech. Why is this important? [2023 Update]

As fintech companies become increasingly intertwined with mobile transfers, electronic payment systems, end-to-end user experiences and cryptocurrency trading, they are leveraging unprecedented efficiency gains. However, this rapid expansion into digital landscapes also raises significant security risks that warrant careful investigation.

In this exploration, we delve into the specific security vulnerabilities and security threats emerging from fintech’s widening horizons, shedding light on the potential threats that include financial data breaches, identity theft, transaction fraud and cyber attacks.

Cyber ​​security in fintech vs banking

Cyber ​​security in banking is enforced by legal regulations, which require banks to provide reliable and secure services and to implement robust security policies and cyber security procedures and operational processes aimed at optimizing services and providing the utmost data protection.

Large and wealthy organizations are constantly testing their security measures as they do not want to risk reputational losses or fines. Especially in the case of large, global banks, even minor cyber threats or security incidents can alienate thousands of customers, which is too big a risk for any business to take.

Above all, breaking a legal regulation often results in severe financial penalties – so severe that it can cause more harm than loss of customers.

Fintech companies, commonly known as financial technology companies, often consist of small-scale or fast-growing startups that extend a portion of their offerings to the banking sector. Some of these fintech entities have transitioned into full-fledged banks, a transformation that brings them under increased regulatory scrutiny. Nevertheless, due to their initial non-bank status, fintech firms have traditionally operated with relatively looser regulations, granting them greater adaptability to match prevailing standards.

As such, a fintech company can act as an “overlay” for banks, facilitating the provision of certain financial products in a simplified manner. The added benefit they bring to the banking industry is shorter time-to-market of services, which is why banks often rely on fintech. However, this overlay often comes with weak security measures.

Why is cybersecurity important in fintech?

Fintech companies and startups offer more flexible products and services than banks due to modest legal regulations. They also offer shorter time-to-market, which is especially important from a business perspective.

However, rapid release cycles mean that fintech companies often simplify their products or skip certain features. As a result, fintech companies often only partially secure their solutions, omitting or delaying certain security measures altogether, especially when they cannot see the added business value.

Fintech startups may also lower their non-functional data security requirements and security protocols due to limited cybersecurity awareness and the false belief that fully secure products are not flexible enough from a business perspective.

This often results in the creation of functional but poorly secured products, which are likely to generate significant security costs when these products are scaled down and need to be properly secured or patched. As a result, dealing with fintech startups can be riskier than trusting global banks.

In general, the probability of a security breach occurring on the part of a fintech company may be higher than in a strictly regulated bank. Top cybersecurity threats in the fintech industry.

Banks, financial institutions and fintech companies are subject to security issues. Fintech startups are particularly attractive to cybercriminals who know that fintech companies rarely invest as much money and effort in security measures as banks. Mistakes like keeping unencrypted data or unsecured third-party services are just asking for trouble. Most common security breaches in this sector include:

Identity theft, which can lead to social engineering or phishing attacks Fraud and money laundering Application breaches and data leaks Spoofing malware attacks (including Ransomware)

What can happen when customer data is compromised

Compromising customers’ financial data can have serious consequences on two levels:

1. For the business:

Loss of what is most important – customer trust, ultimately leading to financial losses Legal implications, e.g. A GDPR cybersecurity breach is subject to hefty fines and can prompt injured parties to file a lawsuit. Increased risk of unauthorized access to data and exposure to subsequent risks, e.g. as phishing attacks

2. For the customer:

Data breaches can lead to a range of activities, such as identity theft, fraudulent transactions, financial fraud, extortion, etc. Misuse of sensitive financial information to carry out other threats, especially phishing attacks Infiltration of other systems, unrelated to the one that was compromised, especially if an individual repeatedly uses the same simple password

Above all, many fintech applications have direct access to various banking systems. If data is leaked from such applications, it can then be used to gain access to unsuspecting credentials, which often remain invisible to the bank’s monitoring system.

How to improve cyber security in fintech – best practices

While absolute elimination of risk is unattainable when developing complex software products of fintech organizations, the following strategies can significantly reduce it.

Embracing the practice of Product Security Engineering, which meshes seamlessly with the agile approach to building digital products, provides an excellent trend for integrating security.

Anchored in secure-through-design and shift-left principles, Product Security Engineering serves as the foundation for fortifying digital products against vulnerabilities in the fintech industry.

Secure by design approach

The best way to eliminate fintech security flaws in fintech firms is to incorporate the secure-by-design approach into the software and product development processes. This approach incorporates specific security techniques at every stage of the fintech application development: from analysis, through design, implementation and testing, to maintenance and monitoring.

The shift-left rule

The most important aspect of the secure-by-design approach is the shift-left rule, which assumes that security practices should be implemented as early as possible, at each software development life cycle (SDLC) stage.

For example, the sooner a Security Engineer joins the project team, the more potential threats he will be able to identify and eliminate through appropriate system design and relevant security controls. This way, the project team can apply security measures and build a solution that better meets specific business needs to protect sensitive data.

This approach also enables companies in the fintech industry to reduce the costs associated with detecting and correcting errors in software products: the National Institute of Standards and Technology (NIST) estimates that the shift-left approach reduces maintenance costs by up to 30 % reduced. Security flaws detected during penetration tests or through security incidents are the most expensive to fix.

Certain practices can reduce the cost of fixing a security flaw.

Certain practices can reduce the cost of fixing a security breach for financial institutions.

Looking for the right talent

Invest in highly qualified security engineers who can perform a range of tasks:

Analytical Conceptual, such as risk analysis or threat modeling Technical tasks, e.g. configuration of CI / CD pipelines or cloud configuration hardening Security testing at various levels, such as application, infrastructure, network, etc.

Also, don’t underestimate the importance of solid soft skills. As the team’s expert, the Engineer must be able to clearly present concepts and solutions, so communication skills will be invaluable here.

The importance of cyber security in fintech

A good security engineer is essential for securing products of financial institutions to address cyber security issues. You can even take security a step further by establishing a Product Security Engineering Team, comprised of engineers with solid hard and soft skills. Such focused product-focused security team’s team will easily collaborate with your development and business teams throughout the product life cycle, helping to build product in a fast and yet secure manner.

This is the ideal approach for fintech companies looking for high security standards to protect sensitive data and reduce cyber security risk in a flexible way, as well as to innovate in areas that banks cannot easily address.