Fintech companies are luring new customers by offering alternatives to conventional financial solutions with cryptocurrencies, online loans, and robo-advisors. Unfortunately these new opportunities are more susceptible to fraud and security breaches. Failure to keep consumers’ vital personal data safe from cybercriminals not only hurts the affected individuals, it damages the reputation of the companies responsible for it. According to the Ping Identity 2018 Consumer Survey, three-quarters of consumers would stop using a brand online as a result of a security breach. Faith in the ability of companies to protect personal data differs dramatically by age group. The Ping survey found 53 percent of respondents under 35 feel confident or very confident in the ability of online services and applications providers to protect their personal information, compared with 27 percent of those over 55. The stakes are high for fintech companies to keep the confidence of their customers and to reign in the losses as a result of cyberattacks. It’s projected that global losses from cyberattacks will reach $6 trillion by 2021. Here are three issues currently affecting the cybersecurity landscape.
The rise of fintech solutions is credited with a decrease in the number of unbanked adults. According to the World Bank’s 2017 Global Findex Database, the number of unbanked adults has decreased by 20 percent from 2.5 billion in 2011 to 2 billion in 2014. This group mostly consists of new technology users—the type that often is unaware of cybersecurity risks and thus vulnerable to hacking if targeted. Cybercriminals work by gaining access to networks and accounts as a result of human error. Fintech companies need to educate their consumers about the dangers of opening spam emails and downloading malicious attachments, or entering sensitive information into unsafe websites. By providing tips and best practices, fintechs can make online financial transactions safer.
Third Party Vendors
While fintech companies must adhere to certain federal regulations, they differ from banks in that they are not regulated by a federal banking regulatory agency. In addition, many fintech companies collect data on their customers’ online spending behavior and social media activity. This data is then used for marketing, sales, and decision-making as it pertains to offering financial services or products. Third party vendors, which have different security methods and are subject to different regulations, are given access to valuable consumer data. Many consumers aren’t aware that there information is being shared, or if they have the right to withdraw their consent. Fintechs must insure the security of this information as well keep customers informed as to who has access to their data.
According to the Office of the Comptroller of the Currency(OCC) —an independent bureau within the U.S. Treasury Department—more than 3,300 fintech-based firms were established between 2010 and the third quarter of 2017. Lending by fintech companies has grown from less than 1 percent of personal loans in 2010 to 36 percent in 2017. Currently there is a disagreement between the OCC and state authorities on how to regulate these fintech firms. The OCC wants to form a special purpose national bank category specifically for fintechs that engage in lending or paying checks. The bureau would not enable fintechs to take deposits. If successful, this would give the OCC exclusive power and would eliminate fintechs from having to be licensed in all states. The states feel the OCC is trying to overstate its power and wants to regulate fintech entities themselves. While waiting for this issue to get resolved, fintech companies have to decide whether to wait for a national bank charter or function as a nonbank which makes them subject to state licensing.
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