As ever, banks have had to fight hard to protect their customers from financial fraud in 2019, and banking security will continue to be important in 2020.
According to research from banking body UK Finance, fraudsters stole £616m from UK bank customers during the first six months of 2019. Meanwhile, new annual figures from Cifas, the UK’s fraud prevention service, suggest that instances of fraud have increased by six per cent.
Part of the problem is that the banking security landscape is ever-changing, and criminals are finding increasingly sophisticated ways to circumvent security measures. Next year will be no different.
How technology is impacting the finance and banking sector
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The factors likely to affect banking security in 2020 range from the political to the social, technological and legislative. The increasing popularity of the mobile channel, the move towards open banking and ongoing debate around Brexit will all play their part.
So, with the new year closing in, here are four ways banking security will change in 2020.
Mobile will become the standard platform for financial interactions
In the new year, mobile will supercede telephone and desktop banking to become the most widely used platform for financial interactions. This change will be driven by the preferences of two increasingly influential consumer groups—Millennials and Generation Z.
Though the shift to mobile represents a step forward for convenience, it also means the attack surface fraudsters have access to will increase, which poses an obvious threat. Whether mobile is already part of a bank’s offering or a new mobile app is set to be launched, security needs to be baked in from the beginning, not bolted on at the end.
Many fraudsters look for loopholes in processes connected with registering, activating or using a mobile device in relation to an online account or transaction. This means that the security of the apps used by banking customers is paramount. App development—whether in-house or outsourced—will need to incorporate best-in-class security mechanisms to protect the app and, in turn, the reputation of the brand.
Hackers will exploit open banking
2020 will see the introduction and adoption of open banking applications amongst both consumers and enterprises. The arrival of open banking will be stimulated by PSD2 in Europe and similar legislation in countries such as Australia, Singapore, Hong Kong.
Open banking allows third parties to obtain customer data from banks (with customer consent) and provide a range of new and innovative services. Its introduction will allow customers to enjoy a seamless and fully digital banking experience.
Traditionally, banks have been reluctant to open up their systems to third party providers, and for good reason. Though user experience is set to improve as a result of open banking, it will also give rise to new security threats and vulnerabilities.
The most significant threat will be data breaches suffered by third-party providers who are using open banking interfaces, but whose investment in security measures is insufficient. It’s likely that vulnerabilities in the IT infrastructure of third-party providers will lead to a significant number of fraudulent payments next year.
Financial institutions will embrace artificial intelligence
The siloed nature of the data held by financial institutions (FIs) means they’re prevented from utilising AI to its fullest. The greater the pool of data used in the machine learning process, the more effectively AI can be used for all manner of applications, including to prevent fraud.
Artificial Intelligence: The fourth industrial revolution
Over the next year, we’ll see banks funneling resources into rectifying issues with data architectures and building AI-enabled systems in a bid to remain competitive.
However, while AI can provide a number of enhancements to security infrastructure, banks and FIs shouldn’t rely solely on the technology to combat fraud. Instead, they should implement a combination of technology and human expertise to keep customers safe.
Brexit will pave the way for smaller FIs
Three years on from the 2016 referendum, the nature of the future relationship between the UK and the EU is yet to be decided. Businesses in all sectors have been affected by Brexit and the consequent uncertainty, and the financial services industry is no exception.
In the short term, we will not see significant divergence between the UK and the EU, in part because UK banks will want access to EU customers. However, the UK is soon to lose its voice within EU structures, where it has been consistently calling for reduced regulation and support for the interests of large UK-based banks.
The changes will be subtle and take time to come into effect but, gradually, we’ll likely witness a shift toward increased consumer protection and greater consideration of the interests of smaller financial institutions.
In the new year, banks will be faced with a host of new threats, primarily as a result of changes to the technological and political landscape. In order to mitigate the damage of new and unforeseen security threats, banks should do what they can to make life difficult for criminals.
To do this, they must make use of new risk-based technologies and modern identity verification methods to spot suspicious transactions or account openings. This will allow them to analyse cross-channel data from multiple sources to make real-time security decisions, better manage the risk of fraud and protect their valued customers in the new year.