Financial institutions and fintechs play a pivotal role in supporting the growth and success of small and medium-sized businesses (SMBs). As technology reshapes, enhances, and challenges the financial services industry, organizations face complex obstacles in risk management and data security.
To remain competitive and meet the needs of SMB customers, financial institutions and fintechs must understand and adopt risk management measures like Zero Trust security and digital identity verification. Such precautions are essential components in enhancing cyber security and ensuring safe, digital financial transactions for the SMBs these financial institutions and fintechs seek to serve.
Why is Risk Management Important?
Effective risk management is essential for financial organizations, particularly when it comes to serving their business customers. A robust risk management framework enables these organizations to innovate confidently, equipped with measures to address potential risks linked to new technologies and services.
Last year, 73% of SMBs reported a cyber attack targeting employee and customer data in the US alone, with a third reporting a loss of customers as a result. And when 81% of customers believe the way a company treats their personal data is indicative of how it views and values them, offering secure data solutions that support SMB risk management isn’t something financial institutions or fintechs should ignore.
At the same time, enhancing cyber security as part of a robust risk management strategy can significantly and positively impact an organization’s bottom line. According to a global cyber security report by Accenture, organizations that closely align their cyber security programs to business objectives are 18% more likely to increase their ability to drive revenue growth, increase market share, and improve customer satisfaction, trust, and employee productivity.
The Changing Landscape of SMB Risk Management
The COVID-19 pandemic accelerated SMBs’ adoption of technology, as they were forced to adapt to contactless services, remote workers and workspaces, e-commerce, and cloud-based solutions to survive. This shift was as abrupt and rushed as it was necessary, leaving many businesses vulnerable to data security issues that may have been avoided with more time to evaluate and implement appropriate solutions.
Even so, this change has been significant for lenders in the financial services sector, as it has shown no signs of slowing down. In fact, at the start of this year, 63% of SMB workloads were hosted on cloud services, alongside 62% of SMB data.
This dramatic shift for SMBs has resulted in an increased need for regular data monitoring and data-driven insights to manage risks and evaluate the current state of financial health.
That’s why it’s crucial that fintechs and financial institutions serving SMBs appreciate and implement the fundamentally linked elements of Zero Trust security and digital identity. These cyber security measures provide enhanced data security and fraud prevention, regulatory compliance, improved customer experience, and decentralized control. This is increasingly valuable in our post-pandemic era, as SMBs have shifted towards digital solutions and require more support from their financial service providers.
What is Zero Trust Security?
Zero Trust security (ZTS) is a cyber security strategy that operates on the principle of "never trust, always verify." This approach is particularly crucial in the financial services sector, where the assumption that everything behind a corporate network firewall is safe is no longer valid. Instead, Zero Trust security dictates that no user or device should be trusted by default, even if they are already inside the network perimeter or have been previously verified. Every access request, regardless of the source, requires authentication and authorization.
Initially developed by John Kindervag of Forrester Research, this proactive model is particularly relevant in financial services due to the sensitive nature of financial data and the high stakes involved in protecting it from potential risks like breaches and unauthorized access.
Zero Trust Core Principles
The Zero Trust security model is built upon a set of core principles that guide its implementation and ensure a comprehensive approach to protecting sensitive data and systems. These multi-factor authentication principles form the foundation of the Zero Trust security framework and are essential for creating a robust and resilient digital security environment:
- Explicit Verification: Always authenticate and authorize based on available data points. These should include user identity, location, device health, service or workload, data classification, and anomalies.
- Least Privilege Access: Ensure user access is limited with just-in-time and just-enough access (JIT/JEA), risk-based adaptive policies, and data protection.
- Assume Breach: Implement microsegmentation to minimize potential threats and isolate potential breach impact. Verify end-to-end encryption and use analytics to gain visibility, drive threat detection, and improve defenses.
Implementing Zero Trust Security
More than half of security professionals consider the adoption of a Zero Trust strategy a top priority for their organization in 2024 and beyond. That said, in a recent global survey of cyber security professionals, 23% stated they were actively implementing Zero Trust security measures. In contrast, 47% said they were not yet ready to implement Zero Trust security, due to either a lack of resources and skills or operational complexities.
It’s important to understand that, while valuable, the complexities of Zero Trust security mean widespread implementation will not happen overnight. To effectively implement Zero Trust security and combat potential risks, financial institutions and fintechs must adopt a comprehensive plan for hardening and protecting systems, applications, and data. This involves considering security when planning workloads, understanding the individual protections in place for different cloud services, and using a service enablement framework to evaluate these protections and ensure they align with Zero Trust security principles.
Zero Trust security’s least privilege access principle—limiting access and permissions to the bare minimum necessary to perform tasks—should be applied throughout the application and control plane to protect sensitive data and systems. Automation through DevSecOps can help enforce this principle and ensure that security is integrated into the development process.
Data classification and encryption are also crucial components of Zero Trust security. Data should be classified according to its level of risk, and industry-standard encryption should be applied at rest and in transit. This ensures that keys and certificates are stored securely and managed properly.
Zero Trust Security Monitoring and Incident Response
Correlating security and audit events to model application health and identify active threats is essential to effectively monitor security and to plan for incident response (IR). This process involves establishing automated and manual procedures to respond to incidents promptly and efficiently. Security information and event management (SIEM) tooling should be employed to track and manage these incidents, ensuring a comprehensive overview of the security landscape.
Under the Zero Trust security approach, it's imperative to protect all endpoints, whether internal or external. This can be achieved through the use of security appliances or Microsoft Azure services, such as firewalls and web application firewalls. Equally important is the implementation of industry-standard approaches to defend against common attacks. Swift identification and mitigation of code-level vulnerabilities, such as cross-site scripting and Structured Query Language (SQL) injection, is crucial. Regular incorporation of security fixes and patching into the operational lifecycle is essential for maintaining a strong security posture.
Finally, modeling potential threats and testing mitigation strategies are critical components of a comprehensive security plan. Procedures should be put in place to identify and mitigate known threats, while penetration testing can be used to verify the effectiveness of these strategies. Additionally, the proactive use of static code analysis and code scanning can help detect and prevent future vulnerabilities, thereby strengthening the system's defenses.
By implementing these measures, organizations can establish a strong foundation for their Zero Trust security approach, ensuring the protection of their assets, data, and users. Regular monitoring, incident response planning, and continuous improvement of security practices are essential to staying ahead of evolving threats and maintaining a secure environment.
Security Compliance Certifications and Zero Trust Security
As a cloud platform, security is one of the most important factors for 9Spokes and our clients. Dealing with substantial amounts of data comes with the responsibility to ensure data privacy and to have strong security measures in place—crucial when working in the financial services industry. As a ISO 27001 certified organization, banks and fintechs can partner with 9Spokesto leverage our expertise in data security and privacy while ensuring that their SMB customers’ digital business banking experience is modernized and meets the highest standards for protecting customer data.
What is ISO 27001 Certification?
ISO 27001 is an international standard that outlines the requirements of an Information Security Management System (ISMS) and includes controls that can enforce a Zero Trust security approach to unauthorized access.
These controls include access, network security, continuous monitoring, privileged access rights, and continuous verification. Under the ISO framework, this is referred to as “the CIA triad,” which is a risk management process that ensures the preservation of confidentiality, integrity, and availability of information:
Confidentiality
What This Means: Only authorized individuals have access to the information held by an organization.
Confidentiality is crucial for protecting sensitive data and ensuring it does not fall into the wrong hands. A breach of confidentiality can occur when unauthorized parties, such as criminals, gain access to an individual’s login details. These compromised credentials can then be sold on the dark web, leading to further unauthorized access, data breaches, and potential financial losses for the organization.
Information Integrity
What This Means: Ensures that the data an organization uses to conduct its business or safeguards for others is reliably stored, processed, and protected from accidental or unauthorized modification, deletion, or damage.
Maintaining data integrity is essential for organizations to make accurate decisions, provide reliable services, and maintain the trust of their clients. A common risk to information integrity is human error, such as a staff member accidentally deleting a row in a file during processing. This seemingly small mistake can lead to incorrect data, compromised decision-making, and potential financial or reputational damage to the organization.
Availability of Data
What This Means: Ensures that an organization and its clients can access the required information whenever needed to meet business objectives and customer expectations.
Appropriate data availability is crucial for an organization's smooth operation and for providing uninterrupted services to its customers. A significant data availability risk includes technical issues, such as server problems or insufficient backup systems. For example, if a database goes offline due to server malfunctions and there are no adequate backup systems in place, the resulting prolonged downtime can hinder the organization's ability to conduct business and serve its customers effectively. This can lead to financial losses, reputational damage, and loss of customer trust.
With these factors in mind, it becomes clear that Zero Trust security and ISO certified organizations share much in common. Financial institutions and fintechs seeking to offer their SMB customers compliant and modern solutions equipped with leading, global security measures are served best when partnering with trusted organizations like 9Spokes that have prioritized and received an ISO 27001 certification are ideal.
What is Digital Identity?
Digital identity refers to the online representation of an individual's or entity's personal information, credentials, and attributes used to authenticate and authorize access to digital services. Digital identities help establish trust and verify the authenticity of parties involved in financial transactions, an essential practice for preventing fraud, unauthorized access requests, and ensuring transaction integrity in our modern age.
What is Digital Identity Verification?
Digital identity verification is a process that confirms a user’s identity, ensuring the individual is who they claim to be.
Digital identity verification typically involves several elements:
- Biographic data, such as name, address, and birthdate
- Biometric data, such as facial images, scans, or fingerprints
- Document verification, such as passport or driver’s license analysis (often compared to a new selfie taken by the user)
- Knowledge-based verification, such as asking security questions only authorized users would know
- Digital attribute analysis, such as IP address and device ID
Today, as modern malware attacks, deepfakes, and the other cyber security threats outlined in this article threaten SMBs, such precautions have never been more critical.
The Role of Digital Identity
Digital identity is crucial for customer onboarding and transaction authentication in the financial sector. This practice is also vital for compliance with regulatory requirements such as global Know Your Customer (KYC) and Anti-Money Laundering (AML) standards. Failure to meet such requirements can result in heavy fines and other penalties.
Identity theft and online fraud are becoming increasingly prevalent, causing concern for SMBs and their customers. In fact, Deloitte researchers expect identity fraud to generate at least $23 billion in losses by 2030. Therefore, it is clear that the need for secure digital identity verification and management has become more important than ever.
Banks and Digital Wallets
A recent report from Mobey Forum suggests that financial institutions must strategically leverage open data to become major players in the evolving digital identity space. As custodians of personal data, these organizations have a unique opportunity to use their infrastructure, resources, and customer trust to offer value-added digital identity wallets. In this way, financial institutions can solidify a position as brokers of trust in the digital economy.
Banks in the Nordics and Canada have demonstrated high customer engagement in their respective BankID and Verified.Me systems, indicating the potential success of digital identity wallets. This trend is also gaining global traction, with the amount of government-issued digital IDs worldwide set to reach 5 billion by the end of this year. What’s more, experts predict the number of digital identity verification checks will surpass 70 billion by 2028.
By offering digital identity wallets, banks can provide customers with a more convenient and secure way to manage their identity while also creating a new revenue stream. While banks do not necessarily need to fully provision a wallet for meaningful participation, they can create the infrastructure that enables the issuance and acceptance of verifiable credentials. This allows banks to stake a claim along the value chain according to their own business priorities.
Guidance on how banks can get started with digital identity wallets is also important, including suggestions for identifying business priorities, selecting secure and trusted technology partners, like 9Spokes, and establishing key performance indicators to measure the success of the implementation.
How AI is Impacting Digital Identity and Verification
While there has been an explosion of AI developments and AI-assisted offerings over the last year, AI’s impact on data security has been both positive and negative. On the one hand, AI has supported digital identity protection, with progress in biometric recognition, real-time data analysis, and behavioral pattern recognition. On the other hand, the same AI advancements have resulted in an increase of sophisticated deepfake technology, such as facial image spoofing, vocal clones, and forged or fake documents.
As we look toward 2025 and beyond, financial institutions and fintechs should be careful and strategic with the implementation of AI. 62% of consumers have already expressed concern over how organizations are using their personal data regarding AI, and 60% have reported a loss in trust because of AI use.
The Importance of Third-Party Service Providers for Digital Security and Lending
Organizations in the financial sector may wonder if data aggregation and integrations can be developed in-house. Put simply, partnering with a trusted, ISO 27001 certified integration provider like 9Spokes is a simpler, faster, and more efficient solution for financial institutions and fintechs seeking to accelerate market expansion while effectively managing risk and data security.
With a focus on trustworthy data privacy and data security, 9Spokes provides a cloud-based platform that allows financial institutions and fintechs to bring together various data sources and APIs into a single view. This solution empowers organizations to better demonstrate their data security and privacy expertise to the SMBs they serve or seek to attract.
Precise Monitoring with 9Spokes
9Spokes enables financial organizations with deeper insights on a business customers' financial health and performance metrics. This information is instrumental in amplifying the success of risk management programs.
SMBs can fall into the trap of running their business the same way, regardless of external factors. This can result in several consequences: overstocking/understocking, incorrect revenue forecasting, miscalculating necessary cash reserves, or poor demand planning leading to cash flow issues. These are all indicators of sub-optimal business performance and are causes for concern for any suppliers, partners, or creditors.
The 9Spokes platform can equip lenders with the appropriate insights, giving them the ability to track comprehensive business trends, a crucial tool in understanding whether their business customers are thriving or facing challenges. This information empowers lenders to guide SMB customers towards a more stable financial position or seize the opportunity to offer additional financial support during a challenging period, thereby enhancing the lender's relationship with their customers.
9Spokes continuously innovates to benefit its clients, allowing financial institutions and fintechs to stay ahead of the curve without the burden of constantly monitoring and updating their systems. While building in-house solutions may be viable in the short term, partnering with a nimble and effective team like 9Spokes will help organizations scale their business at a faster and more effective rate for their customers.
Conclusion
In the digital era, the interconnected nature of risk management, fraud detection, and security is more apparent than ever, especially in the context of SMBs and their data. It's not enough for financial institutions and fintechs to understand these risks individually; they must collaborate to address them effectively. And this collaboration is necessary for meeting the evolving needs of SMB customers while navigating cyber security risks and challenges.
By adopting Zero Trust security, embracing digital identity, and partnering with third-party service providers like 9Spokes, financial institutions and fintechs can create a more secure and resilient financial ecosystem. These strategies enable them to provide enhanced security, improve customer experiences, and support the growth and success of SMBs.
As technology continues to reshape the financial services industry, financial institutions and fintechs must prioritize initiatives to help them stay relevant and adapt to the changing needs of their customers. By working together, partnering with trusted third-party providers like 9Spokes, and leveraging the latest advancements in cyber security and digital identity, these organizations can build a stronger, more secure future for themselves and the SMBs they serve.
