5 Biggest Challenges of Data Security in the Financial Service Industry
Collaboration and a proactive approach are essential in discovering new data security risks, regulations, and measures in the financial service industry. Given the fact that companies within the financial service...
Collaboration and a proactive approach are essential in discovering new data security risks, regulations, and measures in the financial service industry. Given the fact that companies within the financial service industry use data for finding revenue streams, providing personalized experiences, and storing customer information, it’s essential to focus on data security.
Data security is one of the key business goals in this sector, as losing customer data can seriously harm an organization’s overall reputation and success. All banking businesses rapidly adopt different technologies, leading to various exposures and challenges.
This post will introduce the five most significant current challenges and ways to solve them.
Data compliance challenges
Managing data is undoubtedly one of the biggest challenges of data security today. The amount of data that financial companies are responsible for is often impossible even to imagine, and keeping all that data secure and private isn’t any easier. However, with numerous data privacy regulations popping up worldwide, keeping up with all data compliance challenges has never been more challenging.
Organizations even lose approximately $4 million in revenue due to a single data non-compliance event.
What is data compliance?
Data compliance refers to following specific data-related regulations and standards that governments, corporate governance, or industry organizations set forth. These regulations protect the privacy and security of people’s personal and sensitive information by closely defining the rules and protocols for collecting, storing, managing, and using online data. These regulations can exist on a local, federal, or regional level. Therefore, you’ll come across data compliance guidelines and rules that affect only a particular area (e.g., California), the entire country (e.g., the US), or an even bigger entity (e.g., the EU).
Keeping up with the latest laws
With data compliance laws, customers worldwide can control how organizations use their personal and sensitive information. Although data compliance laws have been around for some time now, the two latest significant laws are the GDPR and the CCPA.
- The General Data Protection Regulation (GDPR) is a data compliance law by the European Union. It focuses on providing companies with guidelines on collecting and processing the personal information of people living within the EU boundaries.
- The California Consumer Privacy Act (CCPA) is a similar law to the GDPR, except it focuses on the citizens of California.
Keeping up with the latest laws and regulations is a must for every company that plans to collect and interact with customer data. Companies need to be informed about the latest rules and regulations that could affect them.
High compliance costs
Becoming and staying data compliant is essential but expensive. Namely, every company that decides to collect, analyze, or store customer data must pay for data compliance. The total compliance costs can vary depending on the law and location. For instance, getting started with the GDPR costs a company approximately €900,000 (more than $1 million), although the maintenance costs vary. The CCPA compliance costs aren’t much cheaper. They can range from $50,000 for small businesses to $2 million for large enterprises.
So, even if companies want to be data compliant, paying for all the expenses costs a lot.
With technology playing a crucial role in how companies do business today, technological compliance is essential for organizations that want to maintain their financial health. Around 66% of small businesses struggle with financial issues, especially when paying for operational expenditures. Financial technology and apps could be the solution to alleviating these finance-related chores, but keeping up with the latest tech developments and innovations is also necessary for maintaining technology compliance in the long run.
Maintaining data privacy is rapidly becoming one of the biggest challenges for all companies worldwide, not just those in the financial service industry. Failing to keep data private can lead to unauthorized people accessing the data in question and exposing it, which automatically leads to the damaging of compliance protocols. Therefore, keeping data private, secure, and away from the prying eyes is critical, especially for banking and financial companies that store valuable and confidential information regarding their clients’ finances.
Cyberattacks can damage data compliance by taking advantage of confidential client data. They have recently been on the rise, and preventing them has been a significant challenge. Moreover, various cybercriminal activities are becoming more and more common as online banking services evolve. Financial service companies have to incorporate high-quality systems to detect any suspicious activity and protect customer data at all costs to prevent cyberattacks from happening. Therefore, companies must always be one step ahead if they want to keep cybercriminals at bay and protect their customers by keeping their data secure.
Evolving organizations and customer needs
In today’s fast-paced world, customer needs develop and evolve rapidly. Organizations must transform to thrive and keep track of the latest developments and the latest customer requirements and requests. Since customer needs evolve so quickly, organizations sometimes need to transform how they function quickly. For instance, the increase of online banking users is only one of the examples of how changing customer needs influence financial companies to enter the digital world and launch their first online banking apps and services.
New technologies create new liabilities.
We live in a tech-driven world, so new technologies pop up daily. Although tech developments primarily serve to help us create more efficient and streamlined operations, reaching that point isn’t so simple. Implementing tech-driven changes and upgrading the existing systems are demanding processes that require plenty of time, skills, and resources. Therefore, it’s not uncommon for new technologies to create new problems for companies. Moreover, introducing new technologies usually comes with accepting new liabilities as well. That is a big responsibility, and companies are encouraged to carefully think about their duties once they implement a new piece of technology as part of their system.
Teaching employees proper data management.
The struggles don’t stop once the implementation of new technologies is complete. The most significant challenges begin since all employees need to learn how to navigate and use the newly-implemented systems. Teaching employees proper data management is a detailed and time-consuming process if you want to do it right. Data management practices associated with new technologies can go into great detail when using these technologies properly and utilizing all of their features. It’s vital to ensure every employee receives an in-depth guide on using the newly-acquired tools to prevent mishaps.
Technology changes how companies operate.
Because financial service companies are so reliant on technology, specific tools and systems can often dictate how these companies and organizations operate daily. Also, the impact of new technologies on operations is quite significant since they can affect data. For instance, the rising popularity of cloud data security influences many financial service companies worldwide to introduce these innovative solutions into their organizations. While cloud-based computing equips employees with more flexibility and freedom, transferring all client data from one place to another is a challenging process for experts.
Creating a safe environment for data is a long process.
Data safety means protecting all digital information from cyberattacks, including unauthorized access, data breach, corruption, and theft. Data safety has three goals – confidentiality, integrity, and availability. That means the ultimate purpose of it is to protect valuable digital information and data. With each technological change, companies need to adjust their goals of maintaining a safe environment for online data. With that said, that isn’t a one-time job – it is a long and ongoing process companies always need to come back to, revise, and upgrade.
A cyberattack is an umbrella term for any digital attempt to steal data, disable computers, use a system to launch further attacks, or cause harm to internet users in a different way. Cybercriminals use various methods to launch a cybercriminal attack. Financial service companies have been the main target for a while now. Namely, cybercriminals attack these institutions to drain bank accounts or transfer funds illegally. The most common methods cybercriminals use are spoofing, data manipulation, third-party services, malware, and data without encryption.
Spoofing is a cybercriminal method where a person or a program falsifies data and identifies as someone else. Essentially, it is impersonation. Spoofers do it to trick other people into giving them their confidential data, which provides them with an illegitimate advantage to use the received information and gain some benefit. As for the financial service industry, spoofers typically call clients and introduce themselves as bank representatives. They do it to get the credit card and account info from bank clients, after which they can use the obtained data to access the funds.
Data manipulation refers to adding, removing, or modifying data in a database. As a cybercriminal activity, data manipulation explains the process of launching an attack to access networks, systems, documents, files, and even confidential data. Once the access has been granted, cybercriminals make small, unnoticeable changes to gain an advantage but still keep users in the dark. When it comes to banking and financial accounts, data manipulation refers to cybercriminals manipulating data by changing account owners and payment recipients or altering payment amounts and destinations.
Just because your company systems and networks have premium security features doesn’t mean the data you have in your company is entirely safe. It’s safe to say you are working with some third-party services and sharing at least a portion of your data with them. If one of those third-party services doesn’t have robust security systems like you do, they can easily get targeted by various cybersecurity attacks. That can also put your data and security in danger since the cybercriminals will get access to the information you shared with the compromised third-party service. If you think the odds of such activity are low, think again. A staggering 92% of US organizations have experienced similar situations with third-party services.
Malware is probably the most common type of cyberattack. Malware is also known as a computer virus. It includes installing malicious software on a system, which then executes unauthorized actions, such as disrupting the daily activities within a business, locking important files, ad spamming, and redirection to malicious websites.
The malicious software types are numerous, but worms, viruses, trojans, ransomware, spyware, adware, and malvertising are the most frequently used.
Data without encryption
Recently, everyone’s been talking about the importance of data encryption. However, what happens if data isn’t encrypted? Maybe you’re lucky enough not to experience any consequences, but no financial service company should rely purely on luck. If the data isn’t encrypted, it’s left in a readable form. That means the data doesn’t have any protection, and anyone skilled enough to intercept the data during transmission can easily access the information. Therefore, working with unprotected data puts you at a significant security risk since basically anyone can obtain your and your client’s data.
A third-party vendor can be a person or company that offers specific services to other companies or customers. Since the financial sector is a highly interconnected sector due to the nature of its business, high interconnectivity with numerous third-party vendors is almost an obligatory feature of every company in this industry. Financial companies can receive all kinds of benefits when working with third-party vendors. Whether they partner up with customer service agencies, insurance brokers, or other banks, the possibilities are endless. Through these partnerships, financial companies can offer better deals to their clients and allow them to solve all banking and insurance tasks in one place. However, working with third-party vendors comes with a unique set of risks and challenges.
Vendors can have security leaks.
Choosing reliable and secure third-party vendors is essential to keep your data protected. However, you can never be sure if vendor is doing everything to maintain the highest level of privacy and security. So, third-party vendors act as a liability to their partners. The reality is that vendors often have security leaks. However, because financial companies share and exchange their data with these vendors, their security leaks easily translate as financial company leaks.
That’s the primary reason banks and other financial institutions continually look for quality third-party vendors who put data privacy and security first. A potential security leak would break their trust with consumers, who would redirect their loyalty to their competitors.
It’s crucial to align your practices.
Partnering up and working together with someone isn’t as easy as it sounds. It’s a complex process that requires plenty of mutual understanding, effort, and communication.
The same goes for financial companies working with third-party vendors. Working together on all aspects is crucial for ensuring data safety, not only for professional reasons but also for clients. We can’t stress the importance of aligning working practices enough. When businesses don’t align their practices, it’s easy to make errors that can cost both companies a lot. Financial companies and their third-party vendors will benefit from open communication and streamlined business processes, including dividing the work to setting future goals.
Reporting and monitoring practices are essential.
As you already know, communication and the alignment of practices are essential to make a partnership between financial companies and third-party vendors work. Reporting and monitoring are two crucial practices of this process. With reporting and monitoring practices, financial service companies can build a stronger partnership with their third-party vendors, which will allow them to streamline their processes. They’ll get an insight into valuable information that will enable them to make more informed decisions for the future. Nevertheless, reporting and monitoring come with some obstacles too. Namely, as partners, financial companies can’t get full access to the data available from third-party vendors. That means they can receive only a portion of data, significantly limiting their possibilities.
Companies work with many vendors.
Financial and banking companies partner up with numerous vendors. Of course, the exact number will vary from company to company, but, generally speaking, many third-party vendors are connected to a financial service company at all times. When a company works with so many different vendors, it’s challenging to manage data properly and ensure the highest levels of safety.
Keeping track of data available on so many different locations and platforms can quickly become overwhelming, leading to errors in data security. Reducing the number of third-party partners could be one solution, but ensuring everyone implements robust security systems can be an excellent alternative.
Data management is the fifth and final challenge of data security in the financial service industry. Like data compliance, data management can significantly affect the level of security. For that reason, it’s crucial to manage data properly and avoid data management mishaps at all costs.
What is data management?
Data management is the process of collecting, storing, and utilizing data. However, the most critical feature of quality data management is doing it efficiently, securely, and cost-effectively. Good data management should help companies, organizations, and individuals locate valuable data, utilize it, and keep it safe. Once that’s done, companies can optimize the use of the gathered data and make actionable decisions by analyzing the information they receive. With more and more online threats popping up behind every corner, securing robust data management strategies is essential for protecting the business and its clients.
Increased volume of data
Companies worldwide have turned to digital management, and the amount of data available online has constantly been on the rise for years now. The volume of data usage keeps breaking previously-set records, and it doesn’t show any signs of slowing down. As a result, companies must analyze and manage increased volumes of data, which makes the whole process more complex and expensive.
Data complexity is increasing.
Technology keeps getting better, and tech tools are becoming more advanced. The tech advancement is breaking all expectations, but that also means the data used during these processes is becoming more complex and extensive. While you can expect that when dealing with demanding tasks and activities, even the most sensitive data is becoming complex today.
So, financial service companies should dedicate more time to data collection and analysis if they wish to gather accurate and informative results.
Adopting new technologies
AI (Artificial Intelligence), ML (Machine Learning), robotics, cloud computing, and numerous other innovative technologies are available to financial companies and clients. Each of these technologies influences how financial companies operate and their data management requirements. Since some of these technologies have only recently become available to the broader public, companies are still trying to figure out ways to adopt these technologies into their existing systems. Most of them are demanding and difficult to master, which creates an additional challenge for all financial service companies trying to keep up with the latest tech advancements.
Nevertheless, embracing this tech is vital to stay ahead of the competition, meet consumer demands, and safeguard business and customer data.
Increased pressure on companies
Finally, financial service companies belong to one of the most competitive industries. With that said, companies experience increased pressure to get as much available data as possible and do everything to analyze the gathered data effectively. Due to this industry’s highly competitive environment, companies are constantly under pressure to upgrade their technologies and introduce new elements that set them apart from the crowd.
Failing to implement the latest tech could put them at risk of cyberattacks and other security threats that could harm their organization and customers.
To sum everything up, companies working in the financial service industry are experiencing numerous challenges regarding data security. From newly-published data compliance laws to the increased cybercriminal activity, it seems like an impossible task to keep track of everything going around and protect their business. However, addressing those challenges is paramount, no matter how complicated it seems.
By singling out the five most significant challenges in data security, we hope to give you a sense of clarity and help you detect your weakest points. Once you’re aware of the challenges your company is struggling with, it will be much easier to develop an effective and clever solution.
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