Cyber ​​insecurity: the dark side of digital financial services

NOTICE: New digital technologies are enabling innovation to make financial services to individuals and businesses faster, cheaper and more convenient than ever – perhaps more than in any other industry. This is expanding access to financial services to previously unbanked and underserved populations at a remarkable rate.

And while large “legacy” financial institutions are struggling to keep pace with the revolution, more flexible non-bank innovators such as digital financial service providers are offering biometric authentication, online lending, robo-advisors. , cryptocurrencies and other online services at breakneck speed. These technologies allow service providers to offer a wider range of services with greater reach, improve their own efficiency and reduce their operating costs.

Slow or fast, however, they all face the common threat of cyber insecurity, the dark side of digital financial services. The rapid growth of online platforms makes the digital financial services industry and its customers particularly vulnerable to breaches of computer security networks.

A good regulatory balance is needed, a balance that enables innovation, protects the business community and ensures safe services for clients, whether they are young, urban and tech savvy, or older, rural and opening their first. Bank account.

Financial information is an increasingly attractive target for cybercriminals

Digital financial service providers are often fast and flexible because they may not be subject to the same laws and regulations as traditional financial service providers.

They know that consumer trust is essential to their success and that cybersecurity is essential to trust. But in this hyper-competitive space, some may also see the concept of security by design as an overhead and a barrier to consumer adoption.

This can put consumers’ funds at risk and the vast amounts of increasingly valuable information collected when using these services – from sensitive personal information to financial records and online spending behavior.

Yet many consumers, unbanked or not, do not understand cybersecurity in all its permutations and are particularly vulnerable to hacking if they are targeted.

Combined with growing consumer expectations, a long-term view of trust, security and trust is needed in the online environment. We need to strike a balance between protecting consumers, promoting innovation and promoting cybersecurity as a value proposition for consumers, while encouraging personal responsibility of consumers. These points do not need to be mutually exclusive.

The challenge is to detect hidden threats without reacting to them

The best way to encourage the development of the financial services ecosystem is through profits and good social outcomes. Digital financial service providers who do not offer adequate safety and security measures face impending failure. As such, authorities should consider a self-regulatory framework that encourages digital financial services to offer cybersecurity to current and potential customers using familiar frameworks and straightforward communication.

Online platforms make it easy for connected customers to shop for services and easily post reviews online. While most comparisons will be based on individual requirements – including price, availability, and product differentiation – consumers should also be encouraged to consider issues of online trust and security.

A healthy online financial services marketplace should highlight the pros and cons of specific offerings and provide clients with recourse options when expectations are not being met. With enough negative reviews, public trust declines, tarnishing a company’s reputation and undermining its bottom line.

Innovative financial services products will continue to find new customers, particularly through smart mobile devices. Some of the unbanked and underserved people who access this online environment will experience phishing, scams and intimidation.

Empowering this next cohort of customers will require training, tools and techniques to make them knowledgeable digital citizens, reduce bad online experiences, and enable them to participate in and benefit from digital innovation.

Smart and responsive metrics maintain confidence in financial services

Even though businesses aim to protect data, it’s the human factor of cybersecurity that makes businesses vulnerable from the inside out. Taking cybersecurity requirements lightly can have significant consequences for businesses and organizations, and employees – innocently or willfully – often contribute to the problem.

The human factor played a major role in the 2017 spread of the WannaCry ransomware that put businesses around the world at risk.

WannaCry exploited a vulnerability in a file sharing protocol in the Windows operating system. But even two months after the revealed vulnerabilities were patched with new updates from Microsoft, many users still had not updated their systems. The weakest ties were non-IT staff: Employees with local administrator rights had security solutions disabled on their computers, leaving the virus to spread to entire networks.

To strengthen cybersecurity, digital financial service providers and the traditional banking industry need open communication. An opening is also necessary between the public and private sectors. Greater transparency can protect the financial sector from inevitable cyber attacks and help mend the bridges between society and government.

It will take the right mix of innovation, competition and regulation to shed light on the dark side of digital financial services. Digital financial service providers and regulators will need to work together to secure the open digital financial ecosystem on which sustainable economic growth will depend.

This article was originally published by Asian Development Blog. Read the original article here.


Lotte Schou-Zibell, Group Head of Financial Sector, Sustainable Development and Climate Change Department

Nigel Phair, Director of UNSW Canberra Cyber

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