In the rapidly evolving world of financial technology, the convergence of innovative digital solutions with traditional financial services is creating unprecedented opportunities and challenges. One of the most pressing challenges, cyber security and data protection, has become a key focus for fintech companies, financial institutions, and regulators. Addressing these issues requires a collaborative approach to ensure a resilient and trustworthy financial ecosystem.
Cybersecurity Challenges
Cybersecurity threats to the global financial system are a major concern shared by monetary authorities, financial institutions and technology companies around the world. A study conducted by the International Monetary Fund (IMF) highlighted the urgent need for better protection against growing cyber threats across jurisdictions. The study, which covered 51 emerging and developing countries, revealed startling gaps in cybersecurity preparedness. For example, 56% of central banks or supervisory authorities surveyed did not have a national cyber strategy for the financial sector.
Source: International Monetary Fund
The threat is real and costly: Global costs from cybercrime are expected to soar over the next four years, rising from $9.22 trillion in 2024 to $13.82 trillion in 2028, according to data from Statista. The IMF says attacks have doubled since the pandemic and that cybercrime is now assessed as a significant risk to global financial security.
Source: International Monetary Fund
The financial industry is particularly at risk from cyber attacks. Financial institutions are often targeted by criminals due to the sensitive data and volume of transactions they handle. Such incidents account for roughly one-fifth of all cyber attacks, with banks being the primary target. Furthermore, disruptions to critical services such as payment networks can also have a severe impact on economic activity.
As technology advances, cybersecurity threats have become multifaceted, from sophisticated phishing attacks to complex ransomware operations and deepfake schemes. Even seemingly trustworthy communications can be compromised. Earlier this year, a financial officer at a multinational law firm in Hong Kong paid $25 million after a video call with a deepfake financial officer. At the 2024 Annual Conference on Cybersecurity, attendees highlighted AI as a major challenge for cyber resilience.
Source: Global Cybersecurity Outlook 2024
The digital dilemma
As financial institutions realize the benefits of collaboration, the incorporation of FinTechs into the banking ecosystem is increasing. However, this integration brings complexity that, if not managed effectively, can introduce vulnerabilities into the system. The adoption of new technologies such as cloud, AI, Internet of Things, and blockchain offers various opportunities to deliver better value to customers. However, regulators, central banks, and large financial institutions have been cautious in adopting these technologies across the board due to concerns over data security risks.
“As more digital services are introduced, the attack surface expands and potential vulnerabilities to cyber attacks increase,” said Theresa Walsh, global intelligence head at FS-ISAC (Financial Services Intelligence and Analysis Center). “It is important that the rate at which new products and services are delivered does not outpace the rate at which cybersecurity and fraud protection can be deployed, lest mass adoption create mass risk.”
As innovators, fintech companies are quickly developing and implementing cutting-edge security measures, but their rapid growth can lead to a lack of investment in comprehensive safety measures. On the other hand, traditional financial institutions, with their extensive expertise and established infrastructure in risk management, can provide advanced security technology and knowledge. Finally, regulators set and enforce data privacy and cybersecurity standards, ensuring adherence to best practices while fostering an adaptive regulatory environment that evolves as technology advances.
The financial sector is highly interconnected, with fintechs, banks, and other institutions relying on each other's services and data, amplifying the potential impact of a cyberattack. A successful intrusion targeting one organization can lead to system disruption and undermine trust in the entire system. Industry collaboration can help share threat intelligence, best practices, and incident response strategies, reducing the risk of widespread damage and strengthening overall cybersecurity resilience.
Collaboration Focus Areas
Standardizing protection protocols: Establishing standardized data protection protocols is crucial, including industry-wide best practices for data encryption, anonymization, and secure data storage. Regulatory bodies will lead the creation of these standards, and FinTech companies and financial institutions will ensure their implementation.
Enhanced intelligence sharing: Threat intelligence sharing is essential to stay ahead of cyber threats. Real-time threat data sharing will enable fintechs and financial institutions to stay ahead of attacks in a coordinated manner with regulators.
Implementing robust authentication mechanisms: Strong authentication mechanisms such as multi-factor and biometric authentication are essential to protect user accounts. Collaboration can focus on developing and promoting these technologies across the fintech ecosystem to enhance overall security.
Promote cybersecurity training and awareness: Cybersecurity is both a technical and a people challenge. Ongoing training and awareness programs for employees and customers are essential. Joint initiatives can develop standardized training modules and awareness campaigns to ensure a unified approach to cybersecurity education.
Regulatory sandboxes for innovation: Regulatory sandboxes provide a controlled environment where fintech companies can test new technologies and business models under regulator oversight. These sandboxes foster innovation while ensuring compliance with regulatory requirements, creating a balanced approach to risk management.
Stay safe
In today's landscape, it is difficult to imagine financial services without the integration of the latest technologies. This trend will only continue to grow, making it crucial to ensure that everyone is safe and protected. To achieve this goal, efficiently identifying and addressing new security challenges is key.
The interconnectedness of this sector highlights the need for joint action. Fintech companies with their technical expertise have a key role to play in working with regulators and financial institutions to develop proactive cybersecurity strategies. As cyber threats grow, effective communication between all financial stakeholders is essential to mitigate risks and maintain trust in the financial system.
A unified approach fosters innovation while ensuring security and regulatory compliance. By working together, stakeholders can establish standardized protocols, enhance threat intelligence sharing, and increase cybersecurity awareness. This collaboration strengthens the resilience of the financial sector and builds customer trust in an evolving digital environment.
Striking a balance between innovation and security through joint efforts will enable fintech companies, financial institutions and regulators to effectively navigate digital transformation, strengthen the integrity of the financial ecosystem and deliver safe and trusted financial services worldwide – all while fighting the rising global costs of cybercrime.
