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companies but also the industry itself, Brown notes. “Security breaches damage hard won commercial reputations and the confidence in emerging FinTech solutions, which impedes rates of adoption in the long- term. For less experienced consumers with a general mistrust of digital services, well publicised breaches impacting the financial services industry can represent the straw which breaks the camel’s back.”
With many FinTech startups depending on venture capital investment to get their ideas off the ground, such vulnerabilities could be enough to kill a startup in the cradle.
For Michael Jackson, partner at early-stage venture firm Mangrove Capital Partners, the VC firm behind Skype and Wix, a firm’s ability to defend itself from threats would impact on his firm’s attitude to backing it. “This is one reason why I would look in-depth at custodial companies. Anyone holding customer funds has a potential issue and would have to demonstrate a very good understanding before we would invest.”
He also cites a lack of infrastructure and specialist staff as a source of concern. “Most large FinTech companies have well managed and secure systems, subject to audit and control. This is far from the case in smaller companies, which simply by their nature cannot employ best-in-class experts. They are reliant on technical solutions and what they read on the internet.”
The FinTech industry’s appetite for expansion shows no signs of slowing. According to Accenture, global investment in the first quarter of 2016 reached $5.3 billion, a 67% increase over the same period last year. But a desire to enter the market and pursue fast growth before suitable safeguards are in place is a major factor causing security issues.
Pinkard comments: “It’s a temptation for early stage businesses to prioritise growth and innovation ahead of security. Yet it is critical for all businesses to prioritise both.
FinTech businesses in particular build a lot of highly valuable intellectual property as they grow which could be very valuable in the hands of an attacker. Many also deal with third party information, much of it financial. It’s critical this is protected to the highest level possible and many businesses will be subject to the same regulations
www.ibsintelligence.com © IBS Intelligence 2016 as the large banks.”
Brown says security solutions should be built in to FinTech products from the start: “Innovators in the industry must reprioritise security to avoid short-sighted pitfalls associated with rushing to market without sufficient product testing and evaluation. Even secure blockchain-based solutions require meticulous attention to detail with focus on addressing how private keys are used and stored, the method employed for settling transactions, and the mechanism for modifying and forming consensus across distributed systems.”
Since the Russian ransom attempt, Drake said his firm had put in new controls to defend itself against further DDoS attacks. “My advice to other FinTech companies would be to consider taking these steps pre-emptively, rather than waiting for an attack to happen. Using an enterprise solution like CloudFlare or Incapsula will provide a very effective line of defence, at an affordable price point.”
As the global threat increases states are bolstering their defences. In November, the UK announced a £1.9 billion cyber strategy which included the training of new cyber experts and the deployment of specialist police units to combat organised online gangs.
And Pinkard adds there may be calls for more government involvement if the FinTech industry proves unable to protect itself. “Historically we’ve experienced a great deal of reform through regulation on the back of extreme economic and personal loss. Everything from waste management, car insurance and airline regulation to fishing licences, gun laws and lending regulations – anywhere we’ve witnessed disproportionate access to resource, abuse of ownership or indifference to safety. If businesses cannot do more to protect themselves and their customers, I believe we’ll see an increase in calls for government to get involved.”
Ivascu would support the idea of a regulatory body to ensure standards are met. “We know that a country whose rule of law is unreliable is not a good country to invest in. The same is for FinTech players. True fraud protection needs high tech services administered by industry professionals, starting from a basic penetration test to advance defensive strategies and backup solutions for critical situations.”
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