Cybersecurity has never been more important in the banking industry because of a recent wave of digitalisation, regulation, and the Covid-19 pandemic. Suddenly there were many more endpoints for cybercriminals to access: computers, mobiles, unsecured networks. It became imperative for banks to upgrade their cybersecurity capabilities every time they upgraded their digital infrastructure.
Listed below are the key challenges facing the banking sector, as identified by GlobalData.
While all industries must safeguard data, it is critical in financial services. The industry is targeted heavily by cybercriminals, and the recent spike in Covid-19 related phishing attacks are compounding the problem. Banks must protect their networks and customer or proprietary data from theft, corruption, or breach. Failure to properly secure customer data can result in regulatory breaches that can be extremely damaging.
New pure digital competition
New players are using software to provide core banking without the need for any human interaction, pioneering new services such as robo-advice, and operating traditional functions for a fraction of the cost. Open banking enables these third parties, who lead in innovation, to compete more directly with traditional financial institutions. Open banking grants third-party financial service providers open access to financial data from banks and other financial institutions.
Regulators worldwide are becoming bolder and more interventionist, introducing initiatives such as General Data Protection Regulation (GDPR), open banking, anti-money laundering (AML), know your customer (KYC), and enhanced customer authentication. The ever-increasing regulatory burden increases the risk of non-compliance.
The rapid pace of technology change is mirrored by the rapid evolution of regulation, which ranges from the liability model of data sharing to the sustainability principles written into regulatory guidance. Banks can also risk reputational damage if they fail to sign up to initiatives such as the United Nations (UN) principles for responsible banking.
Financial services firms generate incredible amounts of data that is often siloed and underused. Better use of enterprise data can improve product design and promotions, the management of underwriting margin risks and the effective deployment of resources. Incumbent banks, with legacy infrastructure and siloed data are at a disadvantage to smaller firms with infrastructure that supports better use of data.
Low interest rates and falling fee income have hit banks’ profitability. Low interest rates have been a permanent feature of financial markets since the banking crisis of 2008, compressing banks’ margins. In addition, competition from new entrants has driven down fees for financial services or abolished them entirely for certain products. Banks are consequently looking for alternative ways of generating income or cutting costs to drive bottom line growth.
Financial firms are under increasing pressure to reduce their carbon footprint. Furthermore, there have been huge concerns over the governance structures of banks that may lead to financial mismanagement. This was highlighted by the ‘too big to fail’ attitude that was adopted towards the big banks that spurred the 2008 financial crisis.
Whilst banks have been key players in the distribution of government stimulus related to the pandemic, closing down branches caused problems. Since they couldn’t access branches, consumers demanded that banks reorient themselves digitally in order to be able to offer convenient banking in an online world. Many banks lacked the digital expertise to offer digital services at-scale without hiccups.
This is an edited extract from the Cybersecurity in Banking – Thematic Research report produced by GlobalData Thematic Research.