FinTech businesses may be fast and flash but are they safe?

03/05/2017
FinTech businesses may be fast and flash but are they safe?

Financial technology (fintech) has been among the most dynamic start-up arenas of recent years with ambitious new businesses continuing to muscle in on an increasingly broad array of banking sector services.

Their lack of scale and legacy infrastructure has given fintech start-ups a valuable degree of flexibility as they look to outcompete and outmanoeuvre much larger finance sector rivals when it comes to delivering increasingly mobile-based personal and business banking solutions.

Start-ups have also benefitted from having their activities not be so closely scrutinised and contained by regulators as is the case for the banking giants which have traditionally dominated the industry worldwide.

All of which has helped fintech firms to innovate with purpose and to find their own lucrative niches within the banking sector in response to emergent consumer demand. The result has been something of an explosion of fintech start-ups and they are now backed heavily by investors and to the tune of billions of dollars per year on a global basis.

Boom then bust?

The growth among fintech firms in recent years has been remarkable and there have been some very notable success stories but there are also some potential sources of concern. Topping that list of potential concerns has to be the issue of cyber security.

Fintech start-ups are now delivering services in the context of everything from international currency transfers to SME financing and from peer-to-peer mobile payments to digital currency solutions.

Clearly, cybersecurity issues are vitally important in each of these settings and while that point is not likely to be lost on fintech companies themselves there are still question marks over security standards in the sector.

The question is whether sufficient attention is being paid to security issues among start-ups and whether the risk to personal data in these scenarios is sufficiently scrutinised by relevant regulators.

How can you trust a fintech firm?

It is important to note that generalising can be dangerous or at least unhelpful when it comes to fintech firms. The reality is that some will be more focussed and proactive when it comes to tackling hacking and cybersecurity risks than others but, ultimately, only those which take their security seriously enough are likely to stand the test of time.

Also, in some ways, start-ups are actually better placed to ensure data security in the context of mobile banking and finance solutions than their large-scale counterparts. After all, legacy systems can be cumbersome and archaic and difficult to properly protect from targeted cyber attacks, as more than a few big banks have already found to their cost in recent years.

On the other hand, the intensiveness of regulatory oversight within traditional banking settings means that big banks and established major finance institutions already take all issues around data security very seriously indeed and that can be a reassurance to clients and customers.

An ongoing challenge

Efforts to keep customer data safe will no doubt continue to be a high priority and an ongoing challenge to both banking giants and to fintech start-ups alike in the coming years. Indeed, who performs best in this respect might go a long way towards deciding who comes out on top in the increasingly competitive digitised realms of financial services and banking.

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