It would be obvious to say the fintech industry has revolutionized how we handle money and financial transactions. Every fintech company continues to actively adapt to new tech tools to optimize business operations, offer a seamless customer experience, and unlock the technological potential that was previously not possible.
However, this digital transformation has also come with its own set of challenges—vulnerabilities that have now become defining features of the industry.
At the heart of these challenges is fintech’s biggest success ingredient: data. The industry is always plagued with questions from every angle on how they will collect, manage, and use it responsibly.
The Two Sides of Identity Verification for Fintechs
Identity verification for fintech brands is an umbrella term that protects the companies from diverse legal and security risks. If implemented effectively, it positions them as a trusted identity.
The Fintech sector is a heavily regulated one and therefore, not adhering to regulations could cause a lot of legal havoc to the company. For example, in the UK, fines up to millions of dollars can be issued to any brand found wanting / not complying to the Financial Conduct Authority regulations.
Fines like these could wreck business operations, endanger customers, and cause damage to the company’s reputation. So before implementation, brands are left questioning decisions that will make them more prioritized by users while also complying with governing laws.
If not properly executed, identity verification processes could turn users off, leading to a decline in growth and retention rates for companies.
To solve this, most fintech brands outsource this process to reputable companies with proven experience. This relieves the company of identity verification burdens and allows them to focus their energy on building a better product for users.
When fintech companies strike a balance between their onboarding process (registration, even with personally identifiable information) and their adoption (product usage), users won’t mind digging deeper or going through the sometimes rigorous process of verifying their information, although highly rated KYC companies are focused on seamless and rapid verification and validation.
The Storage Dilemma: To Keep or Not to Keep?
Once a fintech company verifies a user’s identity, they face the challenge of storing the collected data securely. It is essentially another Shakesperian parable they must deal with: they need to keep the data accessible for future verifications and compliance purposes, but this very accessibility makes it a prime target for cybercriminals.
Fintech companies are under constant assault from bad actors seeking to exploit any loopholes they can find. These threats come in various forms. They could be as simple as bypassing identity verification processes or as complex as breaching a platform’s entire data storage systems.
There are also extreme cases of state-sponsored actors engaging in cyber espionage, organized crime syndicates targeting financial systems or even insider threats from employees or contractors.
While data is collected once most of the time, storage maintenance becomes more sophisticated as databases enlarge. Any inefficiency in the security process can be exploited by bad actors, leading to potential privacy breaches and financial losses.
Third-Party Integrations and Troubles
Sometimes, the most significant vulnerabilities arise from third-party data storage solutions. Fintech companies often outsource their data storage to cloud providers and/or use other third-party services. However, these integrations often introduce new potential points of failure for the companies to deal with it. And many times, the things they have control over are usually very small.
Companies partnering with third parties must be efficient in their due diligence. They need to understand how the data-storage providers protect data—both at rest and in transit—and ensure compliance with industry standards.
Also, consistent auditing is necessary. Fintech companies should not only confirm safety and security before the partnership but also at any given time. Clear protocols for incident response and data breach notifications should be established to ensure any potential vulnerabilities are addressed swiftly.
Technological Weakness
Fintech providers with poor technology systems are already at risk of disaster. Inefficient technology infrastructure, whether hardware or software, can be a major threat to the company. While this may not be easily noticeable by users, fraudsters and hackers are always looking for the weakest point to break into a system illegally.
If the weakest point is at the fundamental level, it could mean a complete takeover of the company’s data. One of the most notable examples of this is the Equifax data breach in 2017, which was caused by a vulnerability in their web application framework and led to the compromise of personal information for more than 150 million people.
Fintech providers should not leave any aspect of infrastructure and security unchecked. In today’s fast-paced, evolving world, complex software solutions are launched daily, and brands that are not keeping up are opening themselves to becoming victims.
The Innovation Imperative
One of the biggest challenges in the fintech industry right now in dealing with these vulnerabilities is finding the right balance between strict security measures and a smooth user experience. Excessively complex verification procedures can discourage users, while weak security puts the company and its customers at risk of attacks.
Thus, the fintech industry is facing a pressing question: how quickly can the necessary innovation be developed or adopted to solve these problems?
One thing is certain: the responsibility for innovation and security falls on all parties involved: the government, the citizens/customers, and the industry’s stakeholders too. The attacker and malicious agents keep getting clever with how they exploit the vulnerabilities every second and minute. So it is a perpetual cat-and-mouse game between them and security professionals, with user data at stake.
Conclusion
The fintech industry has vividly demonstrated that it is truly possible to achieve financial innovation and inclusion. However, it also has to find ways to innovate to solve its fundamental problems well.
The stakes are high, but so is the potential reward for those who are able to find the right balance. The future of fintech will be shaped by companies that can innovate not just in their financial products, but also in their approach to efficiently managing all forms of data they have to deal with.
