FinTech applications have several levels of processes. Each of the levels needs protection from fraud, attacks, and vulnerabilities. That is why financial services firms need to keep a check on the potential risks of inadequate FinTech security.
In IBM’s report, Cost of a data breach 2022 – A Million-dollar Race to Detect and Respond, the global cost of cybercrime expects to reach US$15 million by 2025. The hours spent recovering hefty asset costs and stagnant operations due to unsecured FinTech applications may cause a massive challenge for financial firms. Also, these might respond to reputation ruin for FinTech companies. For some, devastating application breaches have eroded consumer trust, leading customers to turn to competitors.
This insecurity pushes FinTech companies to focus on the rising risks of inadequate FinTech security. The risks faced by financial apps are diverse and continue to impact a business adversely. Here are some of the most damaging risks that even the most successful and functional FinTech applications may face.
Inadequate Encryption and Data Integrity
Data theft is one of the most frequent breaches in FinTech applications, an incident that occurs in a significant way to earn money. That is why encryption and data integrity must be top priorities for FinTech applications. Today, firms are highly focused on providing encryption into applications so that data privacy is maintained throughout its usage while keeping data integrity at the same time. This is all in action to avoid maximum vulnerabilities and mitigate risks. Data breaches through applications are easy for hackers. And on top of it, fixing the violations is even more complex and expensive.
In the similar IBM report, Cost of a data breach 2022 – A Million-dollar Race to Detect and Respond, the share of breaches caused by ransomware grew 41% in 2022, and it took 49 days longer than average to identify the kind of breach. Destructive attacks also cost over USD 430,000 for FinTech companies worldwide. Encryption helps build customer trust for firms and is one of the easiest ways to comply with security measures and regulations.
Regulatory Fines and Poor Compliance
Inadequate data security for FinTech applications means high penalties for breaches in the security landscape. FinTech companies that are prone to data breaches may require to pay significant compensation to affected customers. Negligence in securing customer data may also harm the firm’s reputation and force the brand to shut down application usage.
Another risk of inadequate FinTech security that can put the company down is failing to comply with the relevant regulations. Many fraudulent transactions may occur if firms provide poor regulatory compliance for protection. This Inadequacy may lead to challenges with support to banking functions since the banking space is heavily regulated. Compliance issues also develop when firms launch cross-border applications that consumers cannot use and may face discrepancies. These risks are pivotal for firms to pay attention to because they can harm the brand name adversely and may face the failure of the business.
Digital Identity Fraud
Payment security in FinTech apps faces two significant types of transactional fraud. One is a transaction through a merchant receiving digital payment. Second is hackers committing fraud by stealing digital payment credentials such as cards, passwords, or devices, phishing, and phone call scams. Hackers exploit mobile applications through:
- Reverse engineering – Threats are built on a non-receptive copy of a FinTech app to reveal the backend function. The process can expose data encryption algorithms and source code edits, including payment details and associated links.
- Injection of malicious code – Hackers attack in-app forms to inject JavaScript code into a section. Low-quality code limits are most vulnerable to attacks of malicious codes.
- Shadow APIs – Cloned applications mostly do not appear with their compromised endpoint. Because of this, attackers also appear as legitimate users. This way, mobile applications are hacked
As these hacks link with digital identity, hackers’ way of committing fraud becomes easy. It is a widespread fraud that mainly occurs in FinTech applications, which firms and developers must address at scale.
Intellectual Property Theft
Intellectual property (IP) theft is considered one of the most dangerous risks of inadequate FinTech security. It occurs when attackers steal the application’s source code, which makes it unique in functionalities, features, and appearances.
Once critical IP safeguards are overlooked, there is a risk of damage to applications on multiple levels, so hackers attack IPs frequently to gain access codes for applications.
On the contrary, some companies allow hackers to hack into competitors’ applications to steal patented technology, confidential information, or unique codes used. This harms the competitive edge of a firm and wastes developmental expenses for the apps. FinTech companies should be aware of having a strategy in place to safeguard their technical innovation behind app development. It could prevent other competitors from infringing upon the company’s IP. In addition, firms must also devote resources to identify and act on any suspected trademark infringement rapidly.
AI Fuzzing
Another risk of inadequate FinTech security is when hackers find application errors through fuzzing or fuzz testing. This testing technique is used by adding random data and invalid APIS, which results in application crashes, failing built-in code, or potential memory leaks.
Today, cybercriminals actively employ AI and machine intelligence to streamline the fuzzing process to find a zero-day weakness, specifically in APIs, resulting in actual information breaches to hackers, which they can exploit in multiple ways.
Emerging Technologies Pivotal in Preventing These Risks of Inadequate FinTech Security
- Artificial Intelligence: AI and machine learning have come a long way in automating fraud detection. Smart algorithms functionalities learn and help to predict user behavior and predict unusual activities if they occur at any time.
- Blockchain – The decentralized nature of Blockchain makes applications invulnerable to the most streamlined methods of breach or hacking. Blockchain networks can predict application compromises amidst the privacy, speed, and usability of a FinTech application. Blockchain runs well in between public, private, and hybrid network setups to keep applications out of any potential risks.
- Multi-cloud storage – Cloud-based solutions are safe. So, adopting it as a multi-cloud data storage solution for applications can elevate hacking-related risks. Creating a secondary private cloud as a backup to all FinTech applications is an excellent way to ensure applications are safe from breaches and data loss.
Also Read: FinTech and Banking: A Winning Partnership Redefining the Future of Banks
What More Can Be Done to Improve Financial App Security?
Given the severe business impacts of a security breach of FinTech applications, firms have more options to protect pivotal apps. To ensure that the apps are as secure as the best level, FinTech companies must deploy several best practices and application shielding strategies, including:
- Cryptographic key protection
- Code obfuscation
- Run-time application self-protection (RASP)
- Anti-debugger protection
- Build diversification
With the wide range of attack trajectories, FinTech applications will continue to be prime targets for hackers. But firms must be firm in staging all possible security concerns during every application development and technology implementation stage.
Navigating Risks Are Key to FinTech Success
Creating a FinTech application is challenging and has many potential risks. FinTech companies may face many financial and regulatory problems when unaware of the potential risks. However, merely being aware of the risks is not a solution to safeguarding applications, but firms need to implement robust solutions that may help navigate the risks efficiently.
