New Cybersecurity Challenges for FinTech Startups

September 15, 2021

FinTech startups are growing at a staggering rate. One of the reasons they are so successful is that they offer alternatives to conventional financial solutions. These alternatives provide more convenience, advanced services, and an improved user experience.

FinTechs can enhance a company's performance and increase profitability while helping them improve customer service. FinTech firms also provide an opportunity for companies to expand their portfolio online while solving industry issues such as credit card processing, money transfers, or processing a loan.

FinTech Companies and Data Security Breaches

However, with all the new technology that has fueled the growth of today's diverse FinTech sector, one common problem has also arisen – developers and companies are facing severe cybersecurity issues, including threats that could lead to massive breaches that affect millions of customers worldwide.

Back in July 2018, Equifax reported that over 143 million accounts were compromised in a massive data breach. Hackers stole names, social security numbers, telephone numbers, and other vital information from account holders. Additionally, other FinTech companies such as Citi Financial, Educational Credit Management Corp, CheckFree Corp, Data Processors International, Korea Credit Bureau, Card Systems Solutions, JP Morgan, TRW Information Systems, and Heartland Payment Systems have also fallen prey to security breaches.

Establishing Better Security Protocols

One of the most significant issues that FinTech startups face is creating better security protocols to enhance encryption data. Without adequate protocols, data is easily exposed, leaving companies vulnerable to attacks.

Tunneling protocols used in VPNs are effective at encrypting FinTech data. Some of the best-known tunneling protocols include:

  • PPTP
  • L2TP/IPsec
  • OpenVPN
  • IKEv2
  • SSTP

These protocols provide different levels of protection and provide security in different ways. FinTech should become more familiar with the different types of protocols and how to use them within a virtual private network – this is especially true in a financial environment where cyberthreats are imminent and ongoing.

Compliance Regulations Falling Behind the Technology

Innovations within the FinTech industry are happening fast, and few entities can keep up with the rapid advancements, including government agencies. Part of the FinTech platform's success relies on the speed of the industry. Unlike their sluggish competitors, i.e., banks, FinTech startups can adapt and evolve alongside consumer demands.

They are quick and flexible partly because they aren't subject to the same regulatory rules as traditional financial services. No regulations control the way startups conduct their business.

Good governance is profitable for most startups. Security that protects customers from breaches is a selling point – one that appeals to security-minded individuals worried about how relatively new and unknown companies will handle their personal banking information. Proof that they are taking the appropriate steps to defend their customers is just as necessary as the other features that set FinTech startups apart from their traditional counterparts.

However, as the gap between startups and financial regulations widens, there grows a risk for careless entrepreneurs to sidestep security altogether. As of yet, no official legislature is stopping them. These companies could prioritize getting to market as fast as possible, even if that means they have to sacrifice cybersecurity to do so.

Address Vulnerabilities in FinTech Systems

As more systems run by different entities become connected, more cyber vulnerabilities will likely arise. A common source of such weaknesses includes the interfaces between systems because two systems that are not designed at the same time by the same developers often pose compatibility issues and challenges in security, especially given the limitations of legacy technology.

This represents a difficult problem for software engineers. When connecting two disparate systems, engineers from either side typically do not have access to how the other system works and vice versa, making it harder to identify all potential sources of vulnerability thoroughly.

Many cybercriminals gain access to networks and accounts because of human error. Simple techniques that are often used include spear-phishing, where humans mistakenly open spam emails and download malicious attachments or enter confidential information into fake websites to which they are redirected. It is essential to raise awareness of cybercriminal risks and educate the newly banked on digital and financial literacy to teach them best practices to ensure security when engaging in financial transactions online.

Pinpointing Three Problems

FinTech companies need to focus on security efforts in three main areas:

1. Application Security

FinTech largely relies on applications that can access users' financial profiles to perform a variety of real-time transactions. Applications are an increasingly common attack vector, and vulnerable code can be exploited as an entryway into financial networks.

Banks and FinTech need to ensure that a secure application security strategy such as a virtual private network is in place to protect user data. This should include a web application firewall enabled with current threat intelligence to identify and mitigate known and unknown threats, as well as to detect and patch vulnerabilities.

2. Cloud Security

Many FinTech companies utilize cloud services to provide consistent, scalable performance with lower upfront costs. However, the cloud must be secured differently than a traditional network or data center, and disparate point solutions often amplify data movement while reducing visibility across these distributed environments. Banks and FinTech firms must ensure that the same security standards they apply to their networks are applied in the cloud.

In addition to detection and prevention, this security must also be dynamically adaptable and scalable to ensure that it can grow seamlessly alongside cloud use. Additionally, to secure financial data, firms need to implement internal segmentation, along with cloud access security brokers, to improve data visibility while integrating industry security standards.

3. Automated Threat Intelligence

An integrated defense needs to be enabled with automated threat intelligence to become a holistic system. As banks and FinTech firms enter partnerships, it will be impossible for IT teams to gather and assess all of this threat intelligence promptly manually. Machine learning will be integral to this process.

Cybercriminals are already leveraging automation to make attacks more effective and persistent. Likewise, machine learning and automation integrated into network security tools enable the detection and prevention of attacks in real-time, allowing organizations to keep pace with cybercriminals.

Adding Multi-Layer Protection Through a VPN

What else can FinTech companies do to protect themselves and their customers best? They must be proactive in anticipating cyberattacks and then putting adequate measures to prevent these attacks. One such measure involves adding a virtual private network to the system for multi-layer protection.

A VPN can adequately safeguard institutional and consumer data while protecting the overall financial infrastructure where many financial transactions occur across an interconnected global data communications enterprise. This increases its overall security.

Some of the core security-related issues that a virtual private network can address include:

  • Data breaches
  • Data loss
  • Hijacking accounts
  • Denial of service attacks
  • Insider threats
  • Malware injection
  • Insufficient due diligence
  • Insecure APIs
  • Abuse of cloud services
  • Shared vulnerabilities

Financial information is a primary target for many cybercriminals. Therefore, it is imperative that both startups and established companies be bound to maintain a minimum level of security. FinTech firms are increasingly attractive targets and typically have fewer resources dedicated to cybersecurity as they prioritize growth and product-market fit. Companies need to consider advanced forms of software and systems such as virtual private networks to provide an adequate level of cybersecurity and data privacy for their employees and customers.

To learn about Prove’s identity solutions and how to accelerate revenue while mitigating fraud, schedule a demo today.

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