Fintech and the Growing Cybercrime (2024)

Fintech, an abbreviation of financial technology, is a broad category that covers technology used to support or provide financial services. Banks are understandably the first enterprises to use the technology.

Fintech services surged in popularity since they improved the processes that made the financial services so hard to deal with. Consider services like Acorns which provides people a simplified process to invest using just their smartphones and without having to go through tedious investment processes. Additionally, consumers are starting to rely on fintech services for an easier way to process other economic concerns like lending and personal finance.

While this sounds pretty amazing, fintech, or any other service that processes sensitive information online faces the same threat – cybercrime. According to stats:

• Fintech firms are prime targets for cybercrime attacks with the growth of attacks outpacing transactional growth by 50%. – Thinkadvisor
• There has been an 80% increase in digital wallet transactions followed by 180% increase in associated bot attacks. – ThreatMetrix
• The global cost of cybercrime is expected to reach $2.1 trillion by 2019 which is almost four times the cost estimated for 2015. – Forbes

These stats are pretty disturbing but they do make us realize that cyber threats are very real and fintech services have their hands full in keeping online transactions secure.

In this post we are going to discuss how cybercrime threatens fintech and how financial services are fighting back.

Using Cryptocurrency to Fight Data Theft

Online financial services, if unsecured, are vulnerable to fraudulent practices. Online identity theft costs the eCommerce sector billions of dollars every year. Last year, ecommerce fraud spiked 30%.

But what would attackers do if the currency they attempt to steal is too digitally complex or isn’t available in any database to make theft possible? Enter cryptocurrency, a digital or virtual currency, which uses encryption techniques to verify the transfer of funds and regulate generation of units of currency.

An example of this is bitcoin, a digital currency that is created and held electronically. It’s not controlled by any financial institute like banks. This means you can digitally control the currency yourself without having to go through a third party.

To illustrate just how cryptocurrencies like bitcoin help fintech fight cyber crime, here is what you should know:

The database is untraceable

Cyber criminals use different means to target databases that have valuable information they can exploit. For example, they can use vulnerabilities in an eCommerce website’s database to steal customer credit card information for fraudulent purposes.

The rules of database safety don’t apply to bitcoin transactions. You won’t need a business to safeguard your bitcoin information like you would with a credit card. There is a blockchain database but unlike credit card information, bitcoin blockchain transactions are untraceable.
And if the database is untraceable, there is nothing for cybercriminals to steal.

Protecting against identity theft

When you use a credit card to purchase an item, a merchant pulls a designated amount of money from your account. Cryptocurrency transactions work differently. They aren’t tied to your identity. As a cryptocurrency holder, you can send exactly a merchant or recipient as little or as much as you need without having to send any additional information about yourself. And if you are not sending any personal details there is nothing for cybercriminals to track or steal.

Lately, consumers are also showing their confidence in letting cryptocurrency prevent identity theft. A study of surveyed identity theft victims shows that 10% of these victims were taking steps to protect their personal information by using alternative currencies like bitcoin.

Using Data Encryption

Encrypted currency isn’t the only thing fintech services use to prevent cyber crime.

How do you know if the third party app that is using your account information will keep this data secure enough for malicious attackers that might use it to steal your finances? They do so by encrypting the data, just as encrypted currencies give consumers the chance to secure online funds. But keep in mind, not every consumer uses cryptocurrency or prefers to.

Fintech services still largely process real money. A consumer can use a third party payment application like the PayPal mobile app to carry out financial transactions overseas. To ensure that the sensitive financial data being transferred is not intercepted, financial services need to use proper encryption techniques to keep data secure at the application level.

Using Machine Learning to Anticipate Attacks

Imagine you accidently clicked on a emailed Google Doc file and it turned out to be a phishing link. Someone steals your user info and uses it to hack into your digital wallet from another device. Each of these events leaves a trail of data in an online network.

But which should you pay attention to and which should you ignore?

Considering the stats mentioned in the beginning of this post, cybercrime will only grow and fintech services need to keep up to curb them. Unfortunately, judging from the sheer volume of these threats, financial services just don’t have the physical endurance or brain power to detect, identify and eliminate each threat that attacks their systems.

Recently, fintech services have started valuing artificial intelligence as a solution for cyber security. According to stats, 30% of large financial institutions are investing in artificial intelligence.

To make threat detection more manageable, some fintech services are relying on a subset of AI, called machine learning, that made tools like the Google Allo messaging app so accurate in detecting patterns in vast amounts of data and generating appropriate responses.

When applied to financial technology’s war with cybercrime, machine learning can predict cyber attacks by detecting the patterns in which they occur, shorten response time to threats, and improve threat detection. Take Fraugster for example, which uses an AI powered fraud detection technology to anticipate fraudulent attacks before they happen. Mastercard too recently introduced its AI powered Decision Intelligence mechanism to detect fraudulent credit card transactions.

Preparing for External Threats

AI mechanisms do have the potential to detect security threats. But what about threats that exist outside of a computer network? What if someone who has a grudge against you steals the device you use to access your financial account?

External threats are very real and can be as damaging as online threats. For example, a business can incur major losses if a fired employee gains unauthorized access to the account of a sales personnel to redirect client payments into some other account.

Users should take more ownership of the devices to prevent something like this from happening. For instance, employees should be more vigilant in logging off from financial applications or be more careful with whom they entrust with their devices; but they still happen nonetheless. Fortunately, fintech services have found ways to make up for this attention lapse.

Behavior authentication is one of them. Picture this. You type in a pin number to access your account but the pin can be stolen. But what if the system ids your physical characteristics and uses this as a basis to identify you? Known as biometric authentication, the technology or security process relies on the unique physical characters of individuals to identify them.

Recently, some fintech service providers began using this to keep their services secure against external attacks. To illustrate, consider AimBrain, which offers “biometric identity” as a service to fintech companies.

Have a Data Recovery Plan

Fintech startups are particularly vulnerable to threats, both online and otherwise, since security measures might not be fully thought out in the beginning. If the service has a web app for instance, a hacker could take advantage of vulnerabilities and use infiltration techniques (such as an SQL injection attack) to modify, steal or delete user data. In addition to potential liability and lost revenue, such breaches can result in a long recovery period to get systems back in order.

If security breaches occur, you need to minimize the damage they can cause. To prevent liability and regain consumer trust, financial service providers should have backup plans to recover the lost data.

Wrapping up

Cryptocurrency does not rely on user identity or has data for cyber criminals to hack into which makes it a safe bet for financial technologies that deal in it. Financial institutions need to adopt a cybersecurity approach. Their applications should encrypt data to keep users safe from cyber threats and reduce the cost of recovering lost data.

To learn more about cyber security, check out how data leaks can compromise enterprise applications.