The world is becoming more dependent on technology every day. Financial transactions happen electronically in seconds, globally without human interaction. This creates many risks.
Banks, insurance companies, and other financial service firms must ensure that their technology delivers on their customers’ expectations while addressing security concerns and complying with regulations.
Companies in the financial services industry are responsible for holding and managing their customers’ money and financial information. They are held to high standards and must comply with federal, state, and local regulations that govern the industry to ensure that customers are are reasonably protected and their financial data is managed as securely as possible.
Customers today, can access their financial information on a many devices from almost anywhere, which increases cyber risk. Protecting the customer’s money and their data from fraud and complying with government regulations while making financial products and services easy to access is a tall order. And cyber criminals are devising new ways to commit fraud, relentlessly.
Governments respond to these trends by updating existing laws, regulations, and technology standards, to accommodate our fast evolving digital economy.
Why does security and compliance matter?
How money and data are handled and stored today is a far cry from what it was even 20 years ago. Millions of people use the internet for communication, shopping, work, and play. Businesses all over the world have adapted their business models in response to this change in consumer focus. While the internet is a fast and convenient way to access, store, and transfer information, some unscrupulous people use the internet to exploit any vulnerabilities they can find for their own profit. High-profile data breaches underscore the need for ever stronger measures to protect information. Financial security and compliance is a never-ending effort to outwit criminals, who will continue to look for ways to break in—meaning no system can guarantee 100% safety forever. However, advances in security technology, adoption of new regulations, and a shift in attitudes about digital financial services will help to keep companies stay one step ahead of the bad guys.
What are the challenges for financial services?
Convenience and customer expectations
The banking industry has made strides moving from a traditional brick-and-mortar model to align with today’s convenience and functional expectations. However, technology and customer sentiment are moving faster than government regulatory oversight of the expanding set of digital features, so banks face a challenge to adapt to customer demand while still adhering to regulations that are slow to change. Additionally, new players in financial services are moving quickly to fill any void, challenging established firms to remain competitive.
Data protection
Data fraud and breaches are always risks when digital information becomes more convenient to access. Data is transmitted over many points before it reaches its final destination and each point presents a potential security risk. Mobile applications are especially easy targets. The app itself and the server it sits on may have vulnerabilities that can be exploited. User behavior can also contribute to the risk.
Government regulations, such as the General Data Protection Regulation (GDPR) in the European Union (EU) attempt to address many of these points of vulnerability, even as data is transmitted across international borders.
Institutional mindset
Changing the mindset of the financial services industry presents additional challenges. The financial sector is cautious about changing from a business model that works reliably to one that, in its point of view, poses risks. The rush to offer consumers more convenience without addressing security risks can have disastrous consequences, but if security processes make the user experience more difficult, customers will look for easier ways to accomplish their tasks. Maintaining this delicate balance is a daunting challenge for even the most innovative and forward-thinking companies.
Public trust
Addressing consumer perception is just as important as the adoption of technology. High-profile data breaches over the years have cultivated an atmosphere of public mistrust toward any company that handles personal data. Trust is easy to lose, and difficult to repair. Customers want assurance that their information is in safe hands. Financial services firms should be as transparent as possible on how they’re keeping information safe from cybercrime and data breaches to cultivate trust.
Consumer awareness and education
Educating customers on how to protect themselves is probably the most important element in a productive and safe banking experience. Keeping consumers updated on what to look for to protect their information, and what to do in case of a breach can improve the relationship between bank and customer. This information changes as new technologies and threats are introduced, and keeping consumers informed will go a long way toward attracting and retaining customers.
How does security and compliance in financial services work?
How the financial services industry addresses security and compliance varies depending on a number of factors. However, governments and organizations worldwide are investing heavily in updated security and compliance measures to meet the demands of the digital economy. Innovations in technology, in addition to applying lessons from past events, are improving how data is received, accessed, handled, disseminated, and stored. Many of the features below are available in most countries:
Encryption
Sensitive data goes through an encryption process—converting it into code that can only be deciphered by using the correct decryption key. However, encrypting, verifying, and decrypting data takes extra time and processing power. To speed up ever-increasing amounts of data processing, banks are upgrading and expanding their existing IT infrastructures or implementing new systems that are more flexible and robust to accommodate faster data encryption that easily scales. The Payment Card Industry Data Security Standard (PCI DSS) plays a large part in how data is encrypted.
Multi-factor authentication
Logging in using multiple forms of authentication is becoming a popular option for more than just financial services websites. The user enters a password or PIN, triggering a request to send a code via text message to a previously registered device. The code contains a set of randomly-generated characters that the user enters to complete the log-in process. While this creates an extra step in the login process, it becomes much more difficult for criminals to break in. Banks in the EU are required by the second Payment Services Directive (PSD2) to implement multi-factor authentication for all transactions, even those extending beyond international borders.
Data storage and distribution
The influence of GDPR extends to countries beyond the EU and drives the policies of financial institutions around the world on how they store, access, and distribute data. Storing data in one place is no longer a safe option for businesses, even those that rely on cloud services to store digital information. Reliance on a single provider creates a concentration risk—making the data vulnerable to breaches. Distributing storage and functions in separate pieces over several providers dilutes the risk, making it more difficult for criminals to access.