By Paridhi Gupta, VP-Product, axio
Powered by the penetration of smartphones and the ubiquity of the Internet, India is a global leader in Fintech adoption, with a rate of 87%. The number significantly beats the global average of 64%. Innovations like UPI, Central Bank Digital Currency (CBDC), Open Credit Enablement Network (OCEN), and more have accelerated the digitisation of the Indian financial ecosystem.
Technology adoption however has not only enabled innovation and empowered financial firms to offer personalised products and services but has also increased risks in the financial landscape.
Some of the factors that have led to this are:
– Data migration to the cloud
– Extensive use of third-party APIs for operational efficiency
– The high volume of digital transactions
– Extensive AI adoption
– Third-party and cross-business collaborations for embedded services
Cyberattacks are becoming increasingly sophisticated and organised, resulting in an uptick in cybercrime. This has made cybersecurity one of the top challenges that the industry faces today.
The Significance of Data Protection for the Fintech Sector
The financial sector stores vast amounts of sensitive data. This data is critical to bolster AI-driven innovation and empower businesses to offer tailored products by predicting consumer needs. However, it serves as the hotspot for cyber attackers. A single cyber incident can potentially damage the reputation, financial resilience, and customer churn of a company.
India reported 13.9 lakh cyberattacks in 2022 and enlisted among the top 5 countries with the most cyber incidents last year. Globally, finance and insurance are among the most targeted sectors by cybercriminals.
The statistics strongly emphasise the need to fortify data privacy and cybersecurity across the financial landscape.
What is Shaping the Future of Cybersecurity and Fintech?
While the rapidly evolving digital landscape has accelerated growth and innovation in the fintech sector, it has increased the vulnerability of the ecosystem to cyberattacks. Adopting superior security protocols and ensuring compliance with standards are among the top factors shaping the future of the industry.
The financial industry is rapidly evolving to take advantage of the healthy growth of the Indian economy. Along with this, the industry’s efforts to enhance data security and customer privacy are also intensifying. The industry, which is no stranger to risk management, is investing the maximum efforts in the following areas:
Artificial Intelligence for Enhancing System Security
AI adoption has proven instrumental in enabling innovation and personalisation in FinTech. Conversely, it has empowered cybercriminals to orchestrate sophisticated attacks and target data-critical systems. FinTech is also leveraging AI to automate vulnerability assessment, stress testing, and developing future-ready security solutions. Threat intelligence and vulnerability exposure automation will be pivotal in shaping cybersecurity for fintech evolution.
Cyber Insurance for Untoward Incidents
With the increasing number of cyber incidents, the insurance industry is evolving to offer tailored products to help fintechs mitigate financial losses. A company that falls victim to a data breach may need to pay fines and reimburse customers for the breach of their privacy. Insurance will enable businesses to reduce the financial impact of the attack.
The Indian government has passed the Digital Personal Data Protection Bill to facilitate ethical data usage for business growth and performance analysis to prohibit the breach of an individual’s right to privacy. The bill provisions a fine of ₹5 crores to ₹250 crores in case of non-compliance. Compliance offers another dimension to ensure that data flows through monitored streams and also helps with insurance claims.
Multi-Tier Security Systems
DLT introduced the concept of trustless systems and decentralised finance while enhancing transaction transparency and enriching open banking. Combined, these have given shape to zero-trust models that assume every access request is hostile until proven otherwise.
API-based seamless integrations have enabled the sector to embed its offering within the processes of diverse B2C industries, opening new revenue channels. On the other hand, APIs have become the most targeted points of attacks. According to CERT-In’s report, the number of API attacks on the Indian financial sector increased by 62% year-on-year as of June 30, 2023. This makes securing APIs critical for the interconnected and increasingly interoperable financial ecosystem.
Multi-tier protection mechanisms mandate security checks at application, data, cloud, and service levels. This has helped the industry multiply defence walls across cloud, application, API, and interaction systems.
Advantages of Adopting Cutting-Edge Security Measures
– Strengthening the security framework has several advantages for the fintech sector:
– Compliance with regulations promotes transparency in data storage, sharing, and processing.
– Robust security and data protection measures strongly imply the company’s commitment to consumer privacy.
– Adopting responsible data collection measures boosts customer confidence and trust in the company. It has a positive impact on customer retention and revenues.
– Protection against unauthorised data access and data breaches will also help prevent/minimise penalties, while facilitating insurance claims.
Focusing on Cybersecurity is the Need of the Hour
Cybersecurity is not only vital for the financial sector, but also for India’s broader goal of establishing its dominance as a digital power. Consumers are increasingly adopting fintech products and becoming aware of their rights to privacy and threats to it.
With the increasing frequency, sophistication, and diversity of cyberattacks, the fintech industry must adopt a strong security framework that can be updated to incorporate new models with technological advancements. Fintechs will need to invest in training and developing their existing workforce to strengthen their defence and build resilience.