This blog post was published on September 02, 2024
It was originally published on May 22, 2021
The financial services industry has been undergoing radical changes for many years. Not only have there been disruptive new technologies but also unprecedented circumstances like the COVID-19 global pandemic and changes in customer expectations. As businesses battle to adapt to changes in technology and market forces, they also need to deal with regulatory compliances. Effectively and quickly navigating these challenges means staying in business and being competitive.
Many of the challenges brought about by technological innovations can be resolved by the very technologies that have caused these disruptions. For this, information technology (IT) needs to assume a more significant role within the financial sector. However, the transition from legacy systems and business models to innovative solutions isn’t always easy.
This blog post discusses the biggest IT challenges in the financial industry and outlines some solutions.
IT Challenges Faced By The Financial Services
New technologies have made a remarkable impact on the financial industry. FinTech companies and startups, which can pivot their businesses to quickly adopt and benefit from new technologies, have forced traditional institutions to rethink their business models and processes. However, the traditional financial institutions are refusing to be outdone just yet and this has fueled the race for continuous innovation.
Rapid changes in the financial industry have also meant that it has become a preferred target for cybercriminals leading to an ever-increasing number of security breaches. This in turn has led to increased privacy concerns and intensified regulatory and compliance requirements. The finance industry information technology, indeed, has its work cut out.
Here are the key challenges and solutions available to overcome them…
1. Cybercrime In Finance
Financial institutions are prime targets for cybercriminals due to the sensitive nature of the data they collect. Personally identifiable information (PII) and sensitive and, such as credit card details and bank account information, can be easily monetized on the dark web, making the financial services industry a top target for cyberattacks—second only to healthcare.
The following are the most common types of cyberattacks on financial services:
Hacking
Hacking involves exploiting vulnerabilities in a computer system to gain unauthorized access to sensitive resources like networks, servers, and databases. While hacking incidents are relatively rare for most industries, they represent a significant threat to financial services. Cybercriminals often launch targeted attacks against financial institutions, driven by the potential for high rewards if they can breach the security and access valuable data such as PII and financial information.
Ransomware And Other Malware
Ransomware is one of the most notorious forms of cyberattacks. By encrypting the files or blocking access to systems, ransomware strikes at the very core of the business, crippling operations, and causing loss of revenue. Some of the most common ransomware families include Sodinokibi, Ryuk, Maze, and REvil.
Ransomware attacks until recently involved cybercriminals holding data or systems for ransom. However, newer ransomware attacks have evolved beyond just holding data hostage and have diversified by incorporating new revenue streams such as:
Threatening to leak sensitive information online,
Selling off victim’s data on the dark web,
Offering ransomware-as-a-service (RaaS) to less tech-savvy criminals.
Knowing how to deal with ransomware attacks is absolutely essential for any financial services company. In addition to ransomware, financial institutions must guard against other types of malware, including banking Trojans, spyware, and rootkits, which can infiltrate systems and cause extensive damage.
Phishing
Phishing is the most common form of cyberattack faced by businesses, including those in the financial sector. It involves cybercriminals sending seemingly legitimate emails to trick you into revealing sensitive information or performing actions that give the criminals unauthorized access to internal systems or data. Targeted spear-phishing attacks using social engineering are especially prevalent in the financial industry.
DDoS
Denial of Service (DoS) is a type of cyberattack that prevents legitimate users from accessing a specific resource, service, or website. It does so by flooding the target with fake or spam traffic causing system overload or crash. Financial institutions, particularly banks and payment gateways, are frequent targets of DoS attacks, which aim to disrupt operations and cause financial loss.
According to the Global Data Protection Index Survey by Dell Technologies, the average cost of cyberattacks was $1.92 million. However, if the attack resulted in a data breach the average costs would be $4.45 million globally and $9.48 million in the United States. However, cyberattacks on financial services are particularly damaging not only because they disrupt operations and result in revenue loss but also because they can severely damage an institution's reputation and lead to hefty regulatory fines.
To combat these growing threats, financial institutions must implement robust security measures. Here are the most important ones:
Data Backup
Data backup is a fundamental security measure and the most effective defense against ransomware. Regular backups ensure that data can be restored quickly in the event of an attack, minimizing downtime and financial loss.
IoT Security
As the adoption of Internet of Things (IoT) devices increases, so do the associated cybersecurity risks. IoT devices often lack the security features found in traditional computing devices, making them vulnerable to attacks. Financial institutions must implement strong security measures to protect their IoT infrastructure from potential breaches.
Identity And Access Management
Identity and access management (IAM) solutions enhance security by simplifying access management across multiple applications. By controlling who has access to what resources, IAM reduces the risk of unauthorized access, lowers the cost of managing access controls, and helps meet compliance requirements.
Cybersecurity Awareness Training
Technology alone cannot fully protect against cyber threats. Employees must be aware of the risks and trained to recognize potential threats. Regular, engaging cybersecurity training is essential for equipping staff with the knowledge to avoid common pitfalls such as social engineering attacks and malware.
2. Fintech Disruption Of The Financial Services
Technology has significantly lowered the barriers to entry in the financial services sector, paving the way for the rise of numerous FinTech startups. These startups, leveraging advanced technology, have grown into formidable competitors for traditional financial institutions, competing for the same customer base and revenue streams. This shift has created a new dynamic in the industry, with some traditional players choosing to compete directly with FinTechs, while others are opting to partner with them.
Adapting to this rapidly changing business and technological landscape demands the adoption of cutting-edge technologies such as cloud computing, blockchain, and artificial intelligence (AI). However, for many established businesses, this digital transformation is a daunting task. It involves transitioning away from well-established processes and legacy systems, and embracing new technologies, practices, and business models—a process that can be complex and fraught with challenges.
Conversely, FinTech startups that evolve into large enterprises face their own set of technological challenges. As they scale, these startups must address the technical debt accumulated during their rapid growth. Simultaneously, they need to focus on maintaining their technological edge and agility to stay competitive in a fast-paced market.
In addition, any significant change in business processes or the adoption of new technologies introduces new cyberattack vectors, potentially exposing systems and resources to greater risks. Therefore, it's crucial that any major technological or business disruption is accompanied by a comprehensive security risk assessment. This assessment will help manage business risks effectively without stifling innovation or compromising agility.
3. Data Security
Financial service companies are entrusted with vast amounts of valuable data, including banking records and PII. The responsibility of safeguarding this sensitive information falls squarely on these companies, regardless of whether the data is collected and handled by them directly or through contractors. Ensuring the security of data stored on servers—whether on-premises or in the cloud—requires the implementation of robust security controls.
While securing data can seem overwhelming, starting with simple, yet effective measures can make a significant impact. Here are some quick and easy steps to enhance data security:
Encryption
Encryption is one of the most straightforward and effective methods for securing data on devices that may be vulnerable to theft. By encrypting the data, you ensure that only authorized individuals can access sensitive information stored on company devices. Most operating systems come with built-in encryption tools, making it easy to activate this security feature with just a few clicks or taps, thereby securing data on both computers and mobile devices.
Two-Factor Authentication
Two-factor authentication (2FA) is an elegant solution for securing your user accounts. When you have 2FA enabled on your accounts, even if a cybercriminal gets hold of your username-password combination, they still won’t be able to access the account without the second form of verification. Implementing 2FA is relatively simple and cost-effective, and provides an additional layer of security without significant financial investment.
Mobile Device Management
With the growth in employee mobility and work-from-home environment, businesses need a solution for managing, monitoring, and securing mobile devices used by their remote employees. Mobile Device Management (MDM) offers a cost-effective and practical solution to accomplish this. MDM solutions help businesses manage their entire fleet of mobile devices from a single interface, ensuring that all devices are configured according to company standards.
With MDM, businesses can centrally control updates, monitor usage, and enforce company policies across all mobile devices. Additionally, in the event of a lost or stolen device, MDM enables remote wiping, helping to maintain data confidentiality and prevent unauthorized access.
4. Regulatory Compliance Requirements
As cyber-attacks are increasing, regulators are taking notice and trying to protect customers by bringing in new regulations and compliance requirements. While regulations and compliance are necessary for the protection of consumer data and privacy, they put additional pressure on the already stressed financial sector.
From the point of view of financial services companies, their ability to demonstrate compliance is an important reason for consumers to trust the industry with their money and financial information. Not to mention that there are several key regulatory standards that must be followed in order to conduct business.
Some of the key regulations for the financial industry include:
Therefore, for financial services companies, building a compliance program goes hand-in-hand with cybersecurity. Effective cybersecurity allows you to ensure that critical assets are protected while adhering to necessary regulations, thus helping meet compliance regulations.
Technology can be utilized to fulfill many of the regulatory requirements without hampering day-to-day operations. Many of the tools that we have mentioned earlier in this blog post such as MDM, IAM, and 2FA play a critical role in helping your business achieve and maintain compliance.
Conclusion
With so many technical challenges to contend with, financial services often find it difficult to define a clear path forward for their IT infrastructure. However, with the right IT support partner, you can attain digital transformation while ensuring seamless operations as well as effective data security.
Jones IT has extensive experience in providing IT Services in the financial industry with Private Equity & VC Funds, Fintech companies, and other Financial Services constituting 21% of our clients. Click the button below to reach out to us and find out how we can help you overcome the IT challenges facing financial services.
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About The Author
Hari SubediMarketing Manager at Jones IT
Hari is an online marketing professional with a focus on content marketing. He writes on topics related to IT, Security, Small Business, and Mindfulness. He is also the founder and managing director of Girivar Kft., a business services company located in Budapest, Hungary.