Fintech Startups and the Data Security Challenge

Very Good Security Guest Blog

The fintech sector has brought consumers an endless stream of modern offerings that have enabled them to ditch several outdated banking and lending products. Companies now have advanced B2B payment solutions at their fingertips, and online financial solutions have never been more convenient.  But, despite being on the cutting edge of digital financial products, young fintech companies are at a disadvantage in a wildly important arena: data security.

With limited resources, growing compliance regulations around the world, and a constantly-evolving list of increasingly dangerous cyber threats, fintech startups face a uniquely difficult uphill battle.  And, with data breaches continuing as an ever-present security threat, fintech firms are turning to new and advanced approaches to data privacy.

But, first, what do we mean when we talk about data security?

What is Data Security?

Data security is the process of protecting digital assets - like information stored in a database - from unauthorized access by unapproved actors. When we refer to data security, we’re simply talking about the set of standards and technologies that protect your business data.  

These days, data security is a fundamental aspect of IT at any modern organization. From encryption and tokenization to cloud storage, data security technologies run a wide spectrum - and a number of advances have been made in recent years. This progress has been in response to, though not quite as speedy as, the growing sophistication of large-scale cybersecurity threats - like data breaches.

Organizations from all industries are vulnerable to data breaches - especially in the age of ID verification, endless online payment methods and 1-click purchasing.

Even multinational tech giants have fallen prey, in extremely public ways. Yahoo just reached a $117.5 million class-action settlement with the victims of its infamous 2016 data breach. That announcement came on the heels of a $700 million settlement that Equifax reached to deal with the aftermath of a 2017 data leak that exposed the Social Security numbers of almost 150 million consumers.

We could keep going down the list - data breaches happen, and they happen to organisations with ample resources invested in information security.

What about smaller organisations?

The Importance of Cyber Security in Fintech

Financial technology companies have revolutionised the way that consumers bank, how startups reach their customers and how businesses all over the world can run more smoothly.

Fintech investments took off in the past five years - providing us with simple alternatives to slow, conventional financial solutions.

Advances in the industry has brought us instant P2P payments, purely-online banking, seamless B2B solutions, innovative lending approaches and products that many businesses and consumers can’t even imagine living without at this point. But the global fintech ecosystem’s consistent growth, potency and complexity make it inescapable that some solutions won’t be secure enough to guard against sensitive data exposure. It’s likely that these vulnerabilities will keep getting identified by attackers, then exploited.

This is a harsh reality that modern businesses are realising - and starting to invest against.

We can see this when we look at application security spending. Businesses are pouring money into protecting their applications and the data flowing through them.

According to Market Research Future (MRFR), the worldwide application security market is expected to reach a staggering $9.64 billion by 2023 - up from just $2.56 billion in 2017. That’s an annual growth rate (CAGR) of 24.95%.

Within this market, SMEs are estimated to be the fastest growing investors in application security.  Unfortunately, when it comes to data privacy and protecting sensitive information, fintech startups face a unique set of challenges that make growing their core business an even more difficult endeavor than it already is.  

Data Security Challenges Faced by Fintech Startups

In the world of securing sensitive data and avoiding data breaches, younger organisations in the fintech space have it especially hard.  

Why is that so?

1. Reliance on sensitive user information

These days, fintech and data analytics go hand-in-hand. From robo advisors to AI-powered saving apps, data-driven technologies have been at the heart of the fintech revolution.

With fintech products deeply intertwined in modern retail banking, asset and wealth management, capital markets and insurance, organizations in this space are inevitably going to have to handle, and store, sensitive information from users.

From ID verification to processing credit card payments, large volumes of sensitive data will make its way onto the databases of fintech organizations. The mere possession of such sensitive consumer information puts them both at risk of sensitive data exposure and places them within the scope of any number of data privacy laws.  

2. New, updating and evolving data privacy laws

The nature of how fintech startups do business make it so that a lot of sensitive data hits their systems, which attracts the interest of government regulators - who are increasingly focused on protecting consumer data.  

In the last few years, governmental regulatory institutions around the globe have started to take greater steps in protecting the rights of consumers when it comes to their personal information.  

From Europe’s General Data Protection Regulation (GDPR), effective since 2018, to the California Consumer Protection Act (CCPA), which went into effect on 1 January 2020, businesses are suddenly needing to juggle compliance certifications for new regulatory frameworks. Not only that, but fintech companies that accept or process credit card transactions have already been saddled with the burden of needing to maintain compliance with PCI DSS - a set of requirements that are aimed at preventing credit card fraud.

3. Limited resources for securing personal data

To successfully prevent data breaches and - simultaneously - meet the complex requirements set forth by legal frameworks like the GDPR, the CCPA and PCI DSS, you’re going to need a team of information security experts and compliance specialists that can create data flow maps, secure your networks and sensitive data storage solutions, ensure that you’re meeting regularly compliance rules.    

Conglomerates have the resources to put towards a large-scale data security effort, but fintech startups have much less at their disposal.

4. Increasingly sophisticated cyber threats

As mentioned above, even some of the most widely-recognized tech brands have suffered from data breaches. From increasingly sneaky malware to highly-targeted phishing attacks, which skyrocketed 250% higher last year, there are simply too many ways for threat actors to gain access.

It just takes one team member on the wrong end of a phishing campaign to trigger a sensitive data exposure event - which can ruin a startup-stage business overnight.

And it’s not just unauthorized malicious actors that fintech startups need to be worried about, as there are threats coming from all angles - even some unexpected ones.

According to Verizon’s Insider Threat Report, 57% of database breaches involved some kind of insider threat from within an organisation. Add that to the possibility of accidental sensitive data sharing and ransomware attacks, and covering all your bases becomes a costly and complex endeavor.

Modern Fintech Data Security: Trends and New Innovations

Thankfully, advances in the realm of data security have sprung up in recent years, helping relieve much of this pressure faced by fintech startups that need to secure their sensitive data.

From tokenization to data encryption, fintechs have employed a number of tried-and-true data security methods. Even with innovative approaches like these, however, data breaches are still a probable threat.

If sensitive data is stored in your database, there is a chance it will be exposed, and there are several avenues through which this could happen. Fortunately, VGS has been securing fintech startups’ sensitive data for years, using a next-generation data security approach that enables businesses to evade storing sensitive information on their systems altogether - while still enabling businesses to reap all the benefits of the original data.

This approach is called data aliasing, which is a technique that redacts sensitive information in real-time and replaces it with a synthetic data alias, enabling organizations to offload their data security responsibilities entirely by keeping the original data off their systems.

Businesses simply put their data security burden in the hands of VGS, which takes care of all sensitive data collection, storage and transfer on their behalf. With their systems significantly freed from sensitive data, businesses’ data security and compliance scope is drastically minimized - enabling them to spend time focusing on innovating their products instead of designing a complex data privacy policy.

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