A shakedown is happening in the financial world. Traditional banking giants are struggling to retain customers, and an emerging market for fintech companies is collecting them in droves
When collecting and storing personal information, FinTech companies dealing with customers must first and foremost protect their customers, the challenge then being how they protect that data.
In 2017, 13 fintech startups were valued at $ 1 billion or more, an achievement so rare that Silicon Valley classifies them in unicorn status.
A growing industry, their success lies in offering alternatives to conventional financial solutions through cryptocurrencies, online loans and robo-advisers. Although this is a rich palette of services that make up the world of fintech, they are united by one challenge: cybersecurity. Its unfettered growth on online platforms makes this industry particularly vulnerable to security breaches.
Regulations cannot keep up with progress.
Innovations in the fintech world are happening at the speed of light and few competitors can keep up – including regulators. Part of the success of the fintech platform lies in this rapid pace: unlike their slow and hard-working counterpart at the country’s largest banks, startups can adapt and change in no time to scale as needed and the expectations of their users.
> See also: Cyber security: the biggest obstacle to financial innovation
They are fast and flexible in part because they are not subject to the same regulatory rules as traditional financial services. The domestic brands of Chase and Bank of America are subject to the Basel Accord, a supervisory mandate that ensures sustainable growth for conventional institutions. There are no such regulations controlling how startups conduct their business.
Good governance pays off for most startups. Security that protects customers from breaches is a selling point – one that appeals to people concerned about the security of how their personal banking information will be handled by relatively new and unknown companies. Just as important as the other characteristics that set fintech startups apart from their traditional counterparts is proof that they are taking the right steps to defend their clients.
But as the gap between startups and financial regulation widens, the risk for reckless entrepreneurs to bypass security altogether increases. For the moment, no official legislature prevents them from doing so. These companies could prioritize getting to market as quickly as possible, even if that means they have to sacrifice cybersecurity to do so.
Some fintechs follow a self-regulatory framework
While many fintech champions believe that strict regulation would stifle the innovation that fuels the industry, others are already using a self-regulatory framework on their platforms, to ensure risk management and privacy. Datas.
> See also: How can banks fight cybercrime?
When collecting and storing personal information, FinTech companies dealing with customers must first and foremost protect their customers, the challenge then being how they protect that data. While disrupting traditional financial channels, many have adopted bank-level security measures and refined them for their digital platforms.
State-licensed lenders, like MoneyKey for example, use Secure Socket Layer (SSL) encryption and verified site certificates to encrypt all information transmitted between clients and their servers. Acorns, a financial technology company that automates savings, is protected by SIPC insurance and 256-bit SSL encryption. Meanwhile, Chime, an online banking service provided by the IFCD, uses 128-bit AES encryption similar to the security used by America’s largest banks.
Maybe not for altruistic reasons
Failure to offer these security measures promises impending failure for reckless fintech companies. The very nature of their convenient online platforms makes it easy for their customers to leave. And don’t forget, these companies serve a hip population who, with just a few clicks of their fingers, can leave a review online. Enough bad reviews can tarnish a company’s reputation.
> See also: How can banks fight cybercrime?
Potential customers who buy from mobile banks or direct lenders won’t click on a business if reviews warn them not to. When public confidence in a startup decreases, it directly affects its bottom line.
Although they are not subject to the same regulations as traditional banks, they must comply with privacy laws. If they don’t, they can face costly legal problems. Last year, some of America’s biggest companies were hacked. Yahoo, Uber and Equifax have been separately targeted by cybercriminals in acts that exposed billions of personal customer information.
While Uber and Equifax are still settling their cases in court, Yahoo has had to pay $ 350 million in damages for its violation. Almost a third of a billion dollars is a big incentive for companies to ensure their security policies. The legal consequences of a lax security policy – as well as the potential loss of business – should prompt startups to invest some of that venture capital money in their security. And as the industry grows, their defense against violations will also increase.