As fintech companies continue to dominate the financial services industry, fraud and data breaches are continuously increasing.
The cost of data breaches in the financial services industry is a whopping USD 5.72 million on average. This is the total financial losses, reputational damage, escalation costs, legal costs, and penalties for non-compliance. Unlike big banks and financial institutions, the costs are extremely damaging for fintech companies that may not survive the consequences of cybercrime.
With intelligent fraud prevention and data security, fintech companies can prevent such costs or, at the very least, minimize damages that occur from attacks.
Let’s dig deeper into why fraud prevention and data security are necessary for fintech companies.
Here are the reasons why fintech companies must focus on proactive fraud prevention and data security:
Fintech companies, regardless of whether they offer direct-to-consumer services or build B2B products for banks and financial institutions, have privileged access to tons of sensitive data, including login credentials, passwords, financial information, credit card details, and so on. This makes them lucrative targets for malicious actors.
If attackers gain access to sensitive information, they can further engage in identity theft, transfer money out of consumer accounts, credit/ debit card frauds or perform other fraudulent activities. This necessitates proactive fraud prevention and data protection.
Fintech companies, despite being on the edge of technological innovation and development, often have security models still in the nascent stages. Attackers, who are always looking for security gaps to orchestrate lethal attacks, launch attacks against fintech companies within days of the launch of new products.
When fintech companies don't prepare for fraud or use traditional fraud prevention policies and programs, they only make themselves vulnerable to attacks. Given the limited resources, they will not be able to cover losses from the attacks. With these nascent fraud prevention programs, the risks only keep increasing as the company becomes more established and the volume and frequency of digital transactions increase.
Fintech companies must build custom, risk-based security models that are effective against the risks facing them. To this end, they should partner with trusted security service providers like Indusface, who have proven expertise and experience in the domain. The solution must be agile, flexible, and scalable, growing with the company's needs.
When customers agree to share their personal and financial information with the fintech company to use their cutting-edge products, they trust the company to ensure the safety of their information and their money. Financial fraud or fintech data breaches are construed as blatant breaches of customer trust and confidence. Proactive fraud prevention and data security help maintain customer trust and confidence.
When a financial fraud, data breach, or attack happens, it not only leads to a loss of customer trust and confidence but also brings major disrepute to the fintech company. The cost of reputational damage and brand image erosion is too high for fintech companies to bear. It includes large-scale customer attrition, loss of brand value, and so on. Proper fraud prevention and data protection strategies help fintech companies maintain their reputation.
Attackers are constantly innovating and leveraging the best-in-breed technology to create new or mutate known threats, continuously improving attacks' complexity, sophistication, and evasiveness.
For instance, they can orchestrate credit card fraud using bots that are so advanced that they mimic human behavior and actions very closely. Hence, traditional fraud prevention tools cannot detect these fraudulent activities.
To detect and prevent such complex and sophisticated threats, fintech companies need to choose fraud prevention solutions that leverage self-learning AI, behavioral and pattern analysis, automation, big data, analytics and global threat feeds. Such solutions can detect and prevent fraud in real-time.
One of the most important reasons why fintech companies should take fraud prevention and data protection seriously is because it is a compliance necessity. Compliance frameworks such as PCI-DSS, GDPR, etc., are stringent, and data breaches, frauds, and other attacks attract colossal fines for non-compliance and even lawsuits against the company.
Effective fraud prevention, data protection, and overall security are indispensable for fintech companies. After all, it directly impacts the company's performance, reputation, finances, and even its continued operation.