Investment And Banking: How Digital Transformation Influences Cybersecurity In Banking

Banks’ first priority is the protection of their client's assets. That’s why ensuring cybersecurity in banking is crucial. As a rule, financial institutions are attacked 300 times more often than other companies. Giants in the market, such as Mastercard Inc MA, deal with about half a million intrusion attempts daily. We’ll tell you about the challenges that next-generation banks face today and the factors that influence cybersecurity in financial institutions. 

The increasing risk of threats

People are gradually moving away from paper money, choosing online banking over it. To meet customer expectations, financial companies develop user-friendly websites and mobile apps. By doing so, they put their cybersecurity at risk.  

No app is perfect. The research company Accenture has proved that with its study of 30 core banking systems - all of them had security vulnerabilities, such as insecure data storage, insecure authentication, code forgery, and so on. Another similar study revealed that 85% of programs have weaknesses. 

One minor vulnerability might be enough for malefactors to get what they want: personal user data, access to bank accounts, CEOs’ or managers’ data, etc. Cybercrime costs financial institutions $18.5 million per year, and the losses are projected to grow up to $6 trillion per year. Quite an impressive growth, right? 

In light of all the above, cybersecurity assurance becomes vitally important. What threats does the banking industry face? 

New types of cyber attacks

As security systems are upgraded, more sophisticated ways of stealing data appear.  

For example, fileless malware penetrates the random-access memory of a device through licensed programs directly, without being saved on the hard drive. Every month, the number of such attacks increases. These attacks are hard to spot and prevent, and they pose a serious threat even to advanced security systems.

Spoofing is a new type of threat and another cybersecurity challenge. Fraudsters make fake websites, the URLs and designs of which resemble a web app of the real bank. When accessing the system, a user enters personal data into the form, thus unconsciously sending it to hackers. 

Fortunately, cutting-edge technology based on AI and ML and skilled cybersecurity professionals can keep the banks safe from that kind of incident.

Digitalization challenges

The banking industry is one of the first to respond to the digital requests of society. Today, customers contact banks via laptops, tablets, smartphones, and smartwatches. IoT devices, in turn, help banks obtain more information about the preferences, needs, and habits of their clients. 

New opportunities pose new challenges for banks. For example, financial institutions might find it difficult to decide on user authentication methods, places for storing bank details, or they might have problems with unauthorized data access, and so on. Since most of the information in the banking sector is secret and data breaches lead to huge losses, cybersecurity turns into one of the important development thrusts in banking.  

Banks are willing to invest in cybersecurity. They will account for almost 30% of all the spending on threat protection by 2023, which amounts to approximately $151.2 billion. 

What data breaches lead to

Сyber security costs prove its value. For example, JPMorgan Chase & Co. JPM spends about $600 million yearly to secure its data and employs about three thousand cybersecurity experts!

Banks have to take such steps - otherwise, they might find themselves in a situation similar to that of Capital One Financial Corp COF who didn’t manage to protect data in the cloud. As a result, one hundred million people in America and about six million in Canada suffered from hacking. Up to 140,000 Social Security numbers and about 80,000 bank account numbers were stolen. The bank itself was charged a penalty of $80 million, and its reputation was shattered.  

Financial institutions need cybersecurity tools to protect their customers. As a survey by Ponemon Institute showed, it is better to put effort into threat prevention than deal with the consequences afterward. 

Remote working and cybersecurity

Most specialists (75%) surveyed by McKinsey prefer to work remotely and are not going to return to their offices. The remote working trend will surely continue in the coming years. In the case of bank officers, this contributes to the attitude towards cybersecurity - data protection concern is ever more topical.

There is a reason for that. In April of 2020 alone, Alphabet Inc GOOGGOOGL Google recorded around 18 million malicious and phishing emails. In this context, banks had to change their security policies several times, conduct specialized information campaigns among their employees, and train them on anti-phishing tests. 

Penalties for non-compliance with security requirements

Compliance with cybersecurity requirements is controlled by the law - therefore, banks are concerned with conforming to legislation. None of them wants to be charged with penalties by, say, the Federal Deposit Insurance Corporation due to security requirement violation or poor protection of client rights.

If a banking institution can’t follow data protection regulations, there will be a huge monetary penalty - just as it happened to the New York Apple Bank for Savings that was charged a penalty of $12.5 million for an alleged violation of the Bank Secrecy Act. 

A few more words about cybersecurity

Cybersecurity investment became especially relevant when the UK and Europe began the transition to open banking. Data flows are opening between different financial companies, and it is becoming extremely important to ensure data protection when transmitting or storing it in the сloud. 

However, research by Deloitte showed that many financial companies can’t keep pace with digital transformation. The founder of Cybersecurity Ventures Steve Morgan says that the business sector is undergoing the natural evolution of cybercrime, as it was with street and other types of crime that developed as the population grew. In addition, cyber-attack methods are improving, hence the traditional ways to deal with them are becoming outdated.     

Although it may be hard to eliminate all the threats and fully protect one’s resources from vulnerabilities, a bank can be kept safe from drastic consequences by limiting the area of attack and preventing it from spreading. That is why financial institutions must be flexible in terms of cybersecurity and employ specialists with relevant knowledge. After all, investors prefer those financial companies that have secure systems, generate profits, lead the market, and grow.