Today, the digital world is being ruled by fintech applications and software, from online banking to mobile wallets. The bad news is that with the rise in the development and usage of fintech apps, the chances of security breaches and data theft have also increased. Such incidents often result in the loss of sensitive personal and financial information. Therefore, ensuring the utmost security of such apps becomes the number one task for fintech companies.
What Is Fintech, and Why Is It Important?
Financial technology or fintech is one of the most convenient technologies that can easily improve and automate the usage and delivery of all financial services. Here’s a definition of the term “fintech.”
According to fintech experts, “Fintech is a technology used by business owners, companies, and consumers to improve and manage their financial processes, operations, and, ultimately, their lives by using specialized algorithms and software.”
Besides this, fintech includes the development and usage of cryptocurrencies like bitcoin. It also completely changes the traditional global banking industry and makes it easier and more secure. Some of the best examples of fintech include online payment systems, such as PayPal and Stock Trading Apps.
Moreover, fintech’s main role in society is becoming more important due to the current COVID-19 pandemic. Nowadays, to maintain social distance, people have started using various online payment solutions to pay for their groceries or medical bills, for instance.
Overall, there are five main reasons that show the importance of this technology:
- Fintech creates financial inclusion.
- Fintech is a safe and secure technology.
- Fintech helps enhance one’s financial capability.
- Fintech is a more cost-effective option for companies.
- Fintech empowers small businesses.
What Are Some Fintech Risks and Challenges?
Let us take a look at some of the risks and challenges that come with fintech use.
Third-Party Security Risks
The built-in security that comes with an application or a software is not always enough, especially when it comes to banking apps. When the banking sector or financial institutions deal with untrustworthy fintech service providers, they may end up losing sensitive data, experience service failures, and ultimately damage their reputation. Typically, the main reason behind these issues are third-party security risks, which must be considered during software development.
Application Security Risks
Many banks use fintech apps to get access to their clients’ real-time financial information. They use this data to carry out various transactions and perform banking operations. However, if a fintech application does not have proper security features and was not created with efficient coding, this may lead to severe consequences, such as cybertheft, for example. In this case, attackers take advantage of the app’s weak security to steal sensitive client data.
Digital Identity Risks
With more and more digital tools coming into the picture, the banking and finance industry started using mobile-based services that come with one-time passwords and various security codes. However, these security passwords and codes are not always safe to use and can be easily hacked. Fintech software development companies need to revisit their clients’ online security architecture and address these risk factors before implementing solutions, such as two-way password verification or retina scan application access in their development process.
Fintech Regulations and Policies
The security requirements for financial applications may vary depending on a company’s location and its target markets. But there are some common regulations and policies that they must follow for data protection.
The General Data Protection Regulation (GDPR) is a law that protects the data privacy of citizens of European Union (EU) member countries. However, the GDPR isn’t only limited to European businesses and organizations. Companies outside the EU must also comply with the regulation if they want to use or process the data of European citizens.
eIDAS is short for “Electronic Identification and Trust Services.” It is another EU regulation that protects cross-border electronic transactions. The main idea behind eIDAS is to provide a common legal framework that can secure all transactions between businesses, government entities, and fintech organizations.
The new and revised Payment Services Directive (PSD2) is a European regulation that aims to regulate electronic payments and help banking service providers secure their technologies. As per a survey, the mandates of PSD2 and the GDPR often overlap. The cost of noncompliance in both cases can lead to serious fines.
The Act on the Protection of Personal Information (APPI) is a Japanese privacy law applied to the fintech vendors as they are the ones who handle users’ private data.
The Financial Conduct Authority (FCA) is a U.K. regulation that supervises all the financial services and focuses on protecting consumer data and its market integrity. Besides, it secures all local fintech service providers.
Fintech Security Solutions
Every operator governed by any legislation is responsible for keeping users’ personal data like their names, social security numbers, and addresses safe. Besides this, other financial details like payment history, debit/credit card numbers, and other information associated with financial transactions must be protected.
Data encryption is required to keep all the information safe and secure. It enables fintech developers to protect data during transmissions made through applications. That is important when the data transmission is highly vulnerable and can be easily intercepted. Secure data transmission includes the use of encryption algorithms like Advanced Encryption Standard (AES).
Penetration Testing for Better Cybersecurity
Penetration testing is nothing but a simulation of a hack. It is performed by skilled specialists, also known as “ethical hackers.” It’s crucial for a company’s developers to have access to a full array of weaponry that any hacker uses to breach security. That can help fintech software development teams identify flaws in their systems and fix them before hackers can exploit them.
Secure Application Logic for Future Possible Threats
Secure application logic means integrating security into every step of the mobile application usage process. Each facet of the application, from data storage to password complexity, needs to be protected against possible threats. The development team must, therefore, have a clear understanding of what kind of data they want to store within the application from the early development stages to secure it from the get-go.
Craft a Secure Code and Architecture
The code of a fintech application must be created in such a way that it can be easily be transferred between different devices. It must include algorithms for easy flaw detection in case of an attack or a breach. Besides this, updating the code must also be an easy process. One of the best practices for writing secure app code is to input validation and review to all data that is sent to external networks. Fintech software development companies must monitor the granting of access to only the most basic functions of their applications and make the rules of access clear.
Testing Stages to Secure Financial Data
Testing is a very important part of the fintech software development process. There are several stages that the development team follows while testing a fintech app:
Checking Network Security
The first thing that the development team does is to test the networks, servers, Domain Name System (DNS) records, and network devices tied to the app. These are the most critical areas that can be easily exposed to the public and, therefore, require more attention. It is also important to check databases, operating systems (OSs), storage, and other components that may be at risk of being attacked.
Check Everything from the Client Side
Server Security Testing
In server-side security testing, the fintech development team needs to make sure that the proper tools and frameworks are used in the right places. For instance, the right framework must be used in the payment module or the module that collects users’ personal information. At first, the team does the testing in-house and, later on, the company hires an outsourcing testing team that can carry out penetration testing.
As seen in this blog, the fintech industry is growing every day, and it’s essential for software development companies to take the necessary steps to ensure their applications are safe and secure.