If you’re paying attention to the financial world carefully, you’ll know there’s a radical shift happening in the way we bank. Consumers—mostly Millennials—are turning away from the traditional banking model for innovative fintech alternatives. Representing the new wave of robo-advisors, online lenders, and mobile banks, these startupsoffer something an old system can’t: adaptable, online services.
Unfortunately, their online platformis one of the reasons why fintech companies face increased security risks. Let’s take a look at the reason why this might be so and how you can make sure you’re safe if you use fintech alternatives.
The fintech industry is in a constant state of flux. It’s able to react to industry pressures and consumer wants at the turn of a dime, changing services and policies as they need. In comparison, the country’s biggest retail banks are slow and cumbersome—not only reticent to change a model that has worked in their favor for decades but also physically incapable of making these rapid-fire changes.
Part of the reason why an institution like Chase or Wells Fargo is a slow-moving financial entity is that it’s upheld to different regulations than the newest startups. Many of these regulations are in place to protect consumers’ personal information and data confidentiality, but an unintentional side-effect is that it strangles prompt innovation within these institutions.
Much like the retail banks lagging behind their innovative fintech competitor, federal legislation has yet to catch up with these startups.There’s a basic Right to Financial Privacy Act that regulates any company offering consumers access to financial products or services. This requires startups to share their security practices with their customers.
Some do, and they’re usually the ones that enact aself-regulatory framework to strengthen their data privacy. An online lender like MoneyKey, in offering quick online loans via their website and mobile app, uses the lending industry’s standard encryption and site certificates to protect data collected and stored on their services. A mobile bank like Simple, which offers no-fee checking and savings accounts, does so with encryption that rivals that of the US’ biggest banks.
Unfortunately, if the fintech world continues to experience unfettered grow that the same time the financial world is slow to enact regulations, there’s a risk that careless startup founders could slip through the cracks. They may neglect security measures to focus on other areas of the business, like getting to market as soon as possible.
Robust regulations may never happen, as many champions of the fintech philosophy believe legislation would snuff out the innovative, fast-acting solutions fintech provides.
What it will come down to is what consumers demand from these startups. Though they may want reactive financial options, they also want secure business practices to safeguard their personal information.
We’re living in a post-Cambridge Analytica world, where the public will have to rethink the way they share their data. Daniel Ives, GBH Insights’ chief strategy officer and head of technology research, says this scandal is“going to change the nature of privacy”. Though these aftershocks will impact web content and ad transparency first, its effects will be felt in the fintech world too, for better or for worse.