The fintech services have made a great transformation in terms of market value and are expected to reach nearly 4.8 trillion by the end of 2020. However, even after many financial institutions have readily adopted fintech services, there are still some hidden challenges in the fintech industry. For instance, the integration of the fintech services in the existing banking solutions raised a severe concern for data security.
Hence, financial institutions should be well aware about the common challenges that are prevailing in the fintech industry.
Trending Challenges In The Fintech Industry
Online hacking and malware attacks became prominent in the past some time. SWIFT systems are used by almost all the banks to exchange vital financial information more securely. However, the recent cyberattack on one of the SWIFT infrastructure indicated the level sophistication of the hackers. The banks and financial institutions have vulnerabilities in their processes, and the hackers take advantage of these vulnerabilities to launch malware attacks.
2. Application Security Risk (ASR)
Fintech applications are used by many banks to access the real-time financial information of their customers. But, if a software application does not have full-proof security modules and efficient codes, then it automatically becomes prone to cyber crimes. The attackers leverage the weak security of the apps to steal the customer data. So, if a person is planning to develop a fintech software solution, then they need to be very sure that the application has all the vital security features included in it.
3. Money Laundering Risk (MLR)
Money laundering has become one of the prominent issues of today’s world. Fintech-driven banks often use cryptocurrency that are not formally regulated by any set of standards and global regulations. Hence, the frequent use of non-regulated currencies results in illegal money laundering and even in terrorist funding, as identifying the beneficiary in any fintech-enabled transactions is not possible due to fintech’s pseudonymous nature.
4. Latest Encryption Technology
There is no doubt that with disruptive technologies, the overall performance of the finance sector drastically improved. But, these robust technologies also gave rise to many of the significant problems in the finance industry. Blockchain, one of the disruptive technologies, gave birth to some serious security concerns. Firstly, blockchain can be hacked by attackers like any other platform very efficiently. Secondly, blockchain transactions are based on trust between two or more parties. Many people use bitcoin in exchanges and trust that the exchange firms will look after that, but it does not happen quite often.
5. Electronic Identity Risks (EIR)
With the introduction of electronic tools in the banking and finance industry, the use of mobile-based services that used one-time passwords and security codes increased drastically. These security codes and passwords could be easily accessed due to the faulty fintech system provided by some of the fintech service providers. Hence, financial institutions need to revisit their online security architecture to address these risk factors before planning for fintech implementation.
6. Cloud-based Security Risks (CSR)
Cloud-based solutions are one of the significant aspects of the fintech industry in terms of data security. But, even though the cloud-based services offer secure data storage, lack of adequate security measures can result in the corruption of your sensitive financial information. There are instances when the company partners with an inefficient cloud-based solution provider and then deals with significant data losses. Therefore, stay updated and be wise while selecting your cloud-based service partner.
7. Data Integrity Risks (DIR)
In today’s digital era, people use mobile phones more readily to access their accounts and for fund transfers. The robust mobile applications provide banking customers with so much ease and quick workflows. But, if mobile devices without robust encryption algorithms are used by financial institutes, integrity issues may occur. Researchers also found that the integrity of data that are gathered from various fintech apps varied significantly across their samples.
To conclude, we can say that, if hackers are unbeaten in their efforts to access the fintech platform with ease and efficiency, the faith of banking customers in the technology-driven fintech platform will significantly reduce. Hence, a balanced innovation is needed that promotes the growth of the fintech industry and mitigates the hidden risks of fintech services.