Alyn Hockey, VP Product Management, Clearswift
For banks and other Financial Services (FS) firms, cybersecurity has become one of the main challenges they have to face. 2019 Clearswift research revealed that 70% of financial companies had suffered a cybersecurity incident in the previous 12 months and less than a quarter of the respondents said they had an adequate level of budget for cybersecurity.
Banks have even more to concern them during the current coronavirus crisis. Keeping employees safe and healthy goes without saying, and banks must also try and keep the business on track. There is also a fresh wave of cyber-attacks to contend with. What cybersecurity threats have emerged from coronavirus and how can banks keep themselves protected?
Facing additional coronavirus-based cyber-attacks
The threats that FS firms face can be broadly categorised into two distinct camps – to steal or to disrupt. Stealing personal data that maybe used to compromise customers through their identities being stolen, which in turn can lead to their accounts being ransacked.
Threats that disrupt the trading of a bank cause operational problems and could result in a loss of revenue. Both types of attacks carry similar consequences: reduced business and reduced customer confidence and the risks of heavy fines if personal data is comprised.
Cyber criminals have not been slow to utilise these threats during the coronavirus crisis and with banks operating in a state of greatly heightened anxiety, are more vulnerable than they might be usually. With people concerned about the current situation, banks are receiving more queries from customers about short-term loans and for general business advice and attacks could come from such a route.
There has also been a spike in coronavirus-based phishing campaigns. These are well-crafted, look authentic to the untrained eye and are designed to trick people into opening them. These campaigns prey on people’s concerns about the current crisis and who are more likely to click on a malicious link now than they usually might be.
Homeworking even when not in the grip of such a crisis has security issues, but with many bank employees now working from home, there are further security concerns. Staff may be tempted to access corporate systems via unauthorised home systems, and it’s also true that homeworkers lack the usual office-based security measures – no email and web gateway security, intrusion detection/prevention systems.
A varied and evolving threat landscape
The threat landscape faced by FS firms is wide, varied and continually evolving. Malware, ransomware and phishing are all still widely deployed tactics, while social engineering techniques, weaponised documents and weaponised websites change all the time. Keeping up with what is going on is a major challenge for any FS firm and especially so during the coronavirus, with internal security teams over-stretched.
Ideally FS firms will have already prepared for being breached and review this process regularly. Assuming they’ve not created a playbook there are several things they will need to do. Identify how the attack happened and work to contain the situation so that it doesn’t continue. This may involve taking systems offline to perform a thorough investigation. Once they know how it happened, what was impacted and any risk assessed, they can begin working through the process of communicating to customers about what has happened and how it’s being dealt with.
If a data breach concerns personal data, then the entity should contact the Information Commissioners Office (ICO) and Financial Conduct Authority (FCA) within 72 hours of becoming aware of the breach. Once the systems have been restored, then it’s a question of reviewing not only how to secure the entity better through technology and process, but also to evaluate any lessons learnt throughout the breach. When a new plan has been finalised then it should be tested through simulation so that staff can learn how to deal with the next one.
The coronavirus crisis has meant that banks must take cybersecurity even more seriously than before, upping the pace of innovation and deployment of effective data protection and threat mitigation strategies. This includes working with the right technology providers and ensuring that they are using all the features and measures available to them.
While the long-term impact of COVID-19 is yet to be assessed, in the short-term it can act as a trigger for banks to reinforce cybersecurity processes. Reminding employees of the need for extra vigilance is part of this, providing advice and technical help to make sure corporate networks are protected as employees work from home. With all the other issues presented by COVID-19, no bank needs the further challenge of a data breach.
SEIZING THE OPEN BANKING OPPORTUNITY
Nick Maynard is a Lead Analyst at Juniper Research
Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:
- Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
- Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.
The Disruption Factor
Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.
- AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
- PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.
Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.
As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.
Open Banking Opportunities & Challenges to Consider
Source: Juniper Research
Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.
The Forecast for Open Banking
The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.
This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.
Open Banking – Delivering Opportunities and Threats
It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.
Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.
Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million
Source: Juniper Research
2021: THE NEW-NORMAL LIFECYCLE FOR BANKING
Laura Crozier, Global Director of Industry Solutions, Financial Services at Software AG
It would be impossible to talk about predictions for the banking industry in 2021 without mentioning the cataclysmic impact that 2020 and the pandemic has had on people, businesses and countries.
Unlike with the global financial crisis, banks have been able to step up as “good guys” this time around, rebuilding their reputations as well as accelerating digital transformation. One of the main outcomes is increasingly smart, efficient online payments.
In 2020, the banking industry innovated like never before. This is the new normal. Overall, customers and society will be the beneficiaries from the changing industry. Here are my predictions:
Reputations are reborn
Banks across the globe pulled out the stops to integrate and adapt systems and processes to help customers during the pandemic. They offered accommodations in loans, assisted governments with the distribution of financial relief, and supported consumers by upping contactless spending limits and virtual deposits.
In 2021, banks will risk losing that rosy glow as economic circumstances drive them to deal with non-performing loans, mortgage foreclosures, layoffs etc. But, beyond their role in society as providers of capital and liquidity, banks will invest to sustain their reputations as trusted and good corporate citizens and use their power to persuade their customers and providers to adopt higher environmental and ethical standards. This will be in the areas of bank carbon-neutrality, sustainable financing, serving the unbanked, diversity and gender equality (as the number of women running a major global bank will double from one (Jane Fraser at Citi) to two). It’s a start.
Coming of age in the way of working
Back in Q1, when bank employees cranked up their laptops on their dining room tables, banks that were strategically undertaking business transformation accelerated their efforts. Those that were tactical, or on the fence, now understand with painful clarity that this work must be undertaken strategically.
Cracks in process and the way of working and their resulting risks can be crippling. Especially from a back-office perspective, it is not enough to rely on “organisational memory” and collegial proximity for work to get done right. Advanced banks pushed the boundaries of remote work, and the proof of concept was successful. So, they’re doubling down on developing digital twins and moving to the cloud. They’re adopting the hybrid office/WFH approach to reduce health risks and reduce cost permanently. The watercooler will never be the same.
The death of cash
Ok, maybe the rumours of the death of cash are a bit exaggerated since there will always be the need for cash (and, to some extent checks; the USA, for example, cannot seem to live without them). But the pandemic has permanently changed the way that consumers and small businesses bank, and the demotion of cash has been accelerated by a decade by the pandemic. For example, the Norwegian central bank said that cash payments in that country have plummeted to just 4% of transactions since March.
Implications? It will be critical to continue evolving payments to be smart, safe and flexible to compete in new world, in both retail and commercial banking. Also, the permanent change in the mix of channels will see banks’ face-to-face engagement with customers fade. Branches aren’t going to go away entirely, but they will be reserved for high value activities – by appointment only. To compensate, the personal touch has to be delivered digitally and intelligently.
The role of the bank as a “financial wellness partner” is being born. Banks will use customers’ data, not just to personalise and differentiate banking experiences, but to make recommendations for products and services beyond traditional banking from across their ecosystem to serve their customers well. Just as customers own their cash (physical or digital), in the future they will demand that they own their data (and can share it with whom they choose). Then retail and commercial clients will share their data in return for value.
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