Top FinTech Risks and Challenges for 2023 & Ways To Resolve Them

Researching potential risks and development challenges is essential to any project, particularly in the fintech area. As a rule, these can significantly affect the development process and project’s progress, efficiency, ROIs, and further profitability of a fintech startup. Moreover, some potential issues can even result in serious financial and reputational damages for the financial and banking enterprises.

To help companies quickly and efficiently respond to emerging challenges, we’ve reviewed some of the most typical ones that are most likely to remain relevant in the following years.

#1 Increasing Cases of Systems Vulnerabilities

The financial and banking industry is all about sensitive and private data, so that software security will be the top-priority focus for the upcoming decades. Even now, more and more international regulators pay attention to system vulnerabilities and their efficient resolution.

An increasing number of security breaches, hacking attacks, and third-party penetration only confirms the importance of this problem in the fintech world. According to Edgescan’s 2022 Vulnerability Statistics Report, the vulnerability risk of every 10th Internet-facing web application is considered a high or critical risk, and nearly 46% of apps today report notable vulnerability issues.

Solution #1: DRP/BCP Analysis in Fintech

Fintech companies must consider efficient and effective algorithms on how to act if a specific incident is detected. Considering the Business Continuity Plan allows for outlining a list of proactive measures to support all the business systems and to mitigate the disruption risks when any accident occurs. Typically, a strong BCP covers the following components:

• Emergency Response
• Crisis Management
• Disaster Recovery
• Business Continuity

The final outcome of the BCP is to ensure the organization is capable of responding and recovering from potential threats as efficiently and effectively as possible.

Solution #2: Adopt a Secure-by-Design Mindset

Based on this concept, companies should build a robust infrastructure to reduce the risks of any cyber incidents and decrease the costs of infrastructure recovery.

Additionally, this allows the launching of an ecosystem that covers all the required skillsets and capabilities to enhance security at different layers. For instance, this practice has already been implemented in multiple companies based in Singapore, the US, the UK, and some European countries.

#2 Digital Identities Implementation

A rising implementation of smartphones and contactless payments has uncovered the problem of the correct digital identity management. Currently, the major requirements for digital IDs in the financial and banking industry are:

• Verified and trusted — must be approved by authorities, regulators, and other relevant stakeholders.
• Portable — must fully replicate the functionality of physical documentation across multiple services.
• Secure — must feature extremely high security against loss, theft, or corruption, plus encrypted — to prevent the risks of data compromise.

Solution: Implement the User Data Protection Practices

Make sure to improve the security of your data storage environment. First, it must be accessed only by authorized users based on their permission level. Also, update the security protocols and scan for potential system vulnerabilities to ensure data is secured 24/7.

Finally, make sure to implement and continually work on data encryption practices, so it could only be read by the authorized person with the appropriate access permissions.

#3 Data Ownership Problem

Generally, data ownership regulates the parties who are allowed to access, create, modify, and delete different data. In the fintech area, data ownership must be given by the security roles only. Otherwise, companies are likely to deal with numerous reputational and financial losses.

Solution: Apply the Latest Practices in Data Privacy

To tackle the issue of data ownership, companies should consider the strategy for efficient management of scenarios related to access privileges. Additionally, it’s also essential to make sure the database is stable, secure, and compliant with local regulations.

If the company lacks expertise in this field, it’s possible to hire a professional team for help. Typically, those experts can quickly uncover the issues, including data ownership, protection, and security management.

#4 Third-Party Service Integrations

APIs have become the strong foundation of nearly all modern applications today. Usually, these are responsible for the coherent and efficient performance of different apps, can speed up the time-to-market, and open up a wide range of opportunities for improving the functionality and competitiveness of particular software.

However, the most critical risk for the implementation of third-party services for the fintech industry is their security concerns. According to BlueVoyant’s research, in 2021, over 93% of companies suffered a cybersecurity breach due to significant weaknesses in their supply chain/third-party vendors. Needless to say, the lack of security can also bring a lot of financial and reputational losses for the companies, as well as make them less competitive in the target market segment.

Solution: Implement Safe & Secure Third-Party Service Integrations

Third-party tools can, in fact, become a clear and easy path to access an internal company’s systems. To mitigate the potential risks, financial and banking companies must utilize trusted licensed software. Additionally, it’s recommended to get a quote from the cybersecurity specialists to study the existing security flaws of third-party tools used and discuss the efficient strategies to improve the company’s resistance to any illegal interventions.

#5 Cloud Migration

For sure, integrating cloud computing services results in increased efficiency and reduced costs for various financial and banking companies. However, not all firms succeed in changing their old on-premise systems and applications for efficient and effective cloud solutions.

Moreover, there are some common mistakes in the FinTech cloud migration, which might affect the overall adoption process:

• Underestimated Cloud Migration Costs. Some of the fields with the most common cost overrun are dependency management, third-party services, re-architecting, legislation, and departmental support.
• Data Management and Security. Data confidentiality and its protection implies properly aligning permissions, encryption, and secure storage to restrict readability and comply with local regulations.
• Integrity. Cloud solutions for fintech should feature the appropriate permissions for restricting data modifications or deletion.
• Data Confidentiality. Financial and banking institutions work with tons of sensitive and personal data, so it’s essential to continually improve their protection policies, test their readability, and review user access to prevent the violation of existing regulations and potential breaches.

Starting a cloud migration process requires a deep understanding of the cloud services and high involvement into the process.

Solution: Involve DevSecOps for Cloud Migration

By hiring the DevSecOps (development, security, and operations) experts, companies can significantly enhance their cloud migration process, as well as strengthen the security and safety of the entire company’s system. Basically, this will help you to make software security a fundamental component of a production pipeline through a detailed software composition analysis.

Being aware of the perspectives of DevSecOps integration, it’s no wonder that nearly 91% of financial companies either have already leveraged or are currently working on the DevSecOps implementation (Sonatype).

#6 Malware Attacks

During the 2015–2020 period, finance and insurance were the most targeted industry by cybercriminals. According to research by IBM X-Force, nearly 70% of the attacks on financial industry firms in 2021 targeted banks. Moreover, the BCG report confirms that financial companies are 300 times more likely to be affected by cyberattacks compared to other organizations. So, cybersecurity must become a number-one priority for each of the enterprises working in banking.

From a business owner’s perspective, the importance of keeping your company secure from ransomware attacks cannot be overestimated. For sure, in the case of a successful attack on any financial and banking institution, criminals can gain much more profit. When infected by malware, a company can experience operational and reputational damage, which also will inevitably lead to significant financial losses and even bankruptcy.

Solution: Penetration Testing for Escaping Malware Attacks

Pentest remains one of the most efficient practices for keeping ahead of attackers and consistently working on security improvements. An advanced team of cyber experts can timely and efficiently examine your system for potential threats and vulnerabilities yet provide a bunch of useful practices for troubleshooting security issues.

Such professionals can also actively collaborate with QA specialists to ensure the robust performance of the particular project before its official release.

Final Words

The financial and banking industry today must deal with a large number of challenges and risks. Organizations need highly prioritize their digital security, continually implement the latest trends and practices for improving their workflow and ensure the best performance of their businesses.

If you are currently planning to start a fintech project development and need professional guidance — our team is always here to help. IdeaSoft has hundreds of tech talents with diverse expertise in software development. So far, we’ve successfully delivered over 250 projects of different sizes and complexity, dealing with hundreds of tech challenges day by day.

Ready to discuss the best strategy for your project? Request a consultation from our experts to discover how to get it successfully delivered right away!