One of the biggest challenges facing the growth of financial technology is a lack of control when verifying user information. This is a serious issue, especially considering the role these services play in our day-to-day lives.
With FinTech having transformed the way people manage their money, the need for data safety cannot be overstated. In this article, we will look at why this issue is so significant for companies of all sizes and what can be done to mitigate the risk.
The Importance of FinTech Security
Fintech security can be compared to a secure home. Just like you wouldn't leave the windows and doors of your house unlocked, fintech companies cannot put their platforms at risk of being broken into. The security systems FinTechs use in this case becomes the home security system except for a millionfold the number of members.
What The Research is Telling Us
Last year, research found that more than 50% of financial institutions were impacted by cybersecurity breaches, which is a 21% increase from the previous year. Additionally, more than 40% of these attacks were aimed at small to mid-sized businesses of which only 14% have the resources to defend themselves.
And lastly, a survey last year found that over 20% of US companies who did face an attack lost between $100,000 to nearly $500,000, with 4% losing over one million dollars.
Options Moving Forward
As we consider the best options for financial firms to maintain the security of their platforms in 2023, one of the most relevant and pressing topics in the sector is KYC (Know Your Customer) software. Before delving into other facets, let's take a closer look at this aspect of fintech security:
Defining KYC: In simple terms, KYC is the process of confirming the identity of your clients and checking that they aren’t involved in any illegal activities. KYC software is an automation tool that supports financial institutions, which includes fintech businesses, in meeting regulations and mitigating any possibility of misconduct.
The software simplifies the customer onboarding process by collecting and verifying their personal information. It then cross-references the information with various databases.
The process is mandatory when opening/maintaining bank accounts in the United States and Canada, as well as in several other countries. This is certainly for good reason as taking on new customers poses plenty of risk without proper verification processes.
This is why every startup needs to strategize and prepare for these contingencies. Yep, it starts that early, and as we said earlier, it’s the small to mid-size institutions that are targeted the most and impacted the hardest.
Now, although KYC is important, it is not the only component needed to ensure your platform is secure. Other aspects include:
Customer Due Diligence (CDD): This is half the process of KYC as this is what collects and cross-references the information financial institutions use to determine the risk customers pose to the institution.
Anti Money Laundering (AML): AML goes hand in hand with KYC since KYC is merely a component of AML technology. It’s designed to prevent any illicit activity such as money laundering or other offences alike.
Fraud Detection Software: This technology analyzes transactions and flags anything that comes across as unusual or suspicious based on pre-determined criteria. This helps to quickly identify potential fraud and minimize the risk of revenue loss.
Again, we’ve emphasized that the financial institutions that prioritize meeting regulatory requirements using these processes will be better equipped to handle cyberattacks and reduce the risk of data breaches, financial losses, and damage to the company’s reputation.
Investing in the right financial verification software not only meets regulatory requirements but also gives clients peace of mind knowing their information is protected. Aside from the direct risks facing firms in terms of security, it’s said that the vast majority of customers won’t stay with platforms that poorly integrate KYC guidelines.
The Takeaway
Financial firms need to consider how KYC fits into their platform. Is it already a high priority? Do your customers find it annoying? The performance of your platform is meaningless if the experience is not enjoyable for your users. This means that consistently evaluating your platform and getting the necessary help will set up any firm for success in the long run.
Written By Ben Brown
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ISU Corp is an award-winning software development company, with over 17 years of experience in multiple industries, providing cost-effective custom software development, technology management, and IT outsourcing.
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