June 24, 2022
The continuous innovation of the modern digital world has made people's lives more convenient. It is easier to communicate, order food, buy things, and even work with more and more businesses adopting a remote work setup amid the COVID-19 pandemic. The need for more contactless service since early 2020 changed how things worked and expedited the increased reliance on digital services.
In addition to the benefits that people gain with the continual shift to all things digital, incidents of cyberattacks and data breaches are constantly on the rise. Among all industries, the financial sector is the most targeted when it comes to cyberattacks. The Federal Bureau of Investigation’s Internet Crime Complaint Center (IC3) received more than 790,000 complaints of cybercrimes in 2020, resulting in losses of more than $4 billion.
The Rise of Digital Finance
Digital financial platforms have become more widely accepted in recent years, and it is expected that they will dominate the financial sector moving forward. As the world moves towards a cashless society, companies have developed platforms and applications that can help their clients with their financial needs, making physical offices less and less necessary. According to Business Insider, almost 65 percent of the population, approximately 169 million Americans, use mobile banking. Eighty percent of these people prefer mobile banking as their primary way to access their financial accounts.
The early stages of the development of mobile banking focused on simple financial transactions, like viewing account balances. But as financial technology continues to develop, mobile banking applications continue to offer more features. In a survey conducted by Forbes, people now use mobile banking applications for more complicated transactions, including mobile check deposits, bill payments, and transferring money to other accounts.
Threats to Financial Institutions
The financial industry is the facilitator of the economy, holding billions in assets, and only functions by maintaining the trust of its customers, so it is understandable why it is the main target for cybercriminals.
Financial institutions are employing robust cybersecurity measures to improve their data security systems, as consumers expect banks and financial technology (“FinTech”) companies to have the most secure systems to protect their data, money, and investments... Despite their best efforts, countless fraud, data breaches, and other cyber-attacks targeted at financial institutions continue to occur.
According to a report published by the Federal Trade Commission (FTC), over 2 million fraud and financial identity theft cases were reported in 2020. These reports resulted in more than $3 billion in losses, significantly higher than in 2019, at almost $2 billion.
These security risks and financial damages are expected to soar going forward with most financial transactions being digitized. With automated transactions becoming the new norm, cybercriminals are taking advantage of the fact that the firms are still adjusting to this sudden digital transformation.
The Need for Cybersecurity
Cybercriminals continue to target confidential information using different means, and companies are spending millions to improve their cyber security to prevent these attacks. Maintaining a high level of security for confidential information is a challenge as cybercriminals continuously adapt to the security changes of the systems they want to strike. Keeping up with continually changing cyber threats and risks requires innovation on how enterprises secure their data.
Most cyberattacks target the software and networks the company uses, but cyber criminals also utilize their services to take advantage of them. Industries, especially complex business types like finance, need high-level and reliable identity verification to assure that their clients are not using their service to attack them.
Identity proofing is applied in many industries but is especially strict in more regulated sectors like finance. Because cyberattacks and the risk of potential losses continue to rise, financial institutions spend millions on identity verification solutions to prevent immense security and financial harm for their business and customers. By verifying an individual’s identity, financial firms can validate that the person trying to access an account or information is the account owner and not someone with criminal intentions.
Know Your Customer (KYC)
For years, financial institutions have used Know Your Customer (KYC) practices to verify and authenticate potential clients before giving access to accounts and services they offer. The Patriot Act of 2001 requires financial institutions to implement a KYC authentication process to avoid fraud, money laundering incidents, and other financial crimes.
Enterprises generally start the KYC authentication procedure during the enrollment process to validate a potential client's identity. The information and documents provided by that person are then screened to check for possible risks to the business. Even when clients already have access to services, the financial firm continues the practice by monitoring their transactions to ensure that they are not performing any prohibited activities while using the service.
The Digitization of Identity Verification
As stated earlier, the immediate effects of the COVID-19 pandemic have forced many industries to utilize the digital world for their services. The health crisis changed how people do things, and innovations were made to meet the demand for contactless services throughout the world. Most offices are closed, many staff members are in a remote work setup, and most transactions in the past year happened online, resulting in enormous quantities of data being added to companies' servers or cloud storage every month.
Many companies have started implementing different digital identity verification solutions and guidelines to prevent potential threats and fraudsters that attempt to exploit their systems. Financial institutions now have electronic Know Your Customer or eKYC guidelines for digital transactions.
The eKYC protocol is the digitalization of the traditional KYC practice. Instead of physically going to banks and other finance offices, people can upload the required identification documents online via eKYC portals, which are developed for a hassle-free client experience.
Although the process is convenient, it poses a high risk of cyberattacks and data breaches from criminals if it is not done properly. Incidents of phishing, faking identities and signatures, or documents occur with worrying frequency, so firms need to implement digital identity verification processes with a high level of assurance and reliability.
The growing demand for digital services for contactless transactions calls for a more secure and dependable form of digital identity verification. Passwords or PINs are not a reliable method of authentication as they are an easy target for hackers. Certain companies are developing identity verification technology that uses one's biological data as a means of passwordless authentication.
Adding biometrics as a part of the flow for identity verification has provided various enterprises with a more secure way of authenticating an individual’s identity, once they have been KYC’d. The technology behind biometric authentication recognizes data needed like facial structure, iris or voice recognition, and fingerprints and uses that to authenticate the consumer’s identity. People have unique biological data from one another, so utilizing biometric verification for complex industries like finance will be beneficial to prevent cyberattacks and crimes.
The Future of Cyber Security in Finance
More than 65 percent of the world is now using mobile phones and the past 15 months have shown how humanity has become more and more dependent on digital services for their everyday needs. People learned that things can be done more conveniently online, but it also became more dangerous. Even with an improved identity verification process, cybercrimes that target the finance industry have increased along with financial losses, and this trend is predicted to continue in 2021 and the years to come.
The financial industry is already spending millions every year to further improve its verification process. Using passwordless authentication and biometrics for verification is gaining popularity and is trending towards becoming the new norm, not just in finance but across every industry.
LoginID’s FIDO2 passwordless authentication solution is highly secure, simple to integrate, and reduces onboarding friction. It enables financial institutions, banks, and card issuers to offer clients strong authentication and identity verification across desktop and mobile platforms.
To learn how LoginID can equip companies and businesses with the necessary fraud prevention tools, get started by registering for a free account.