Banks around the globe are evolving to meet the needs of the tech-driven modern customer. Slowly but surely, digital banking is becoming the standard, with online and mobile solutions replacing traditional brick and mortar branches. Still, make no mistake: we are not there yet. Digital banking remains a work in progress, with a number of unknown cyber security risks that threaten both banks and consumers.
Let’s be honest – traditional banking still has some advantages over digital banking, not just for the customer but the institution as well. One is the ability to get to know the customer personally, which helps the bank make educated decisions about credit and risk. This human interaction thus serves as an important layer of protection and security for the institution – a layer that does not exist when banking becomes digitized.
Take the online lending industry, for example. In online lending, there is no human connection at all. Instead, machines sift through thousands of applications as quickly as possible, making quick, data-based decisions regarding whether an application is worth approving. As a result, mistakes happen and malicious applications sneak through. And each mistake doesn’t just cost the amount of the loan; it also eats away at the institution’s reputation. Public perception often trumps overall financial status, and this can be lethal if the lender develops a reputation for being unsafe.
Another advantage that traditional banking has over digital involves security. A criminal attempting to rob a brick-and-mortar bank faces a real risk of being stopped in their tracks by guards or the police. But a cyber hacker can clean out hundreds of bank accounts from thousands of miles away. Many consumers are now using mobile banking apps for their own convenience, with little understanding of the security vulnerabilities involved. They are rarely apprised of the actual measures being taken to protect their information; they are just comforted by the belief that such precautions are being taken.
Data breaches and lending fraud are only two of the risks involved in digital banking. This is a new frontier for the financial industry, complete with countless unknown threats. Each new security technology will be met by hackers and fraudsters working to penetrate it, so it is crucial that banks and their customers take every precaution necessary to protect themselves.
The key problem facing digital banks and their customers is that most risk detection solutions are based on legacy, rules-based approaches, which are both expensive and ineffective against new, unfamiliar threats. Today’s solutions must be able to detect not only known threats, but even minor anomalies that may indicate fraud, money laundering, security breach or other illegal transactions.
As more banking activity is shifting towards digital channels, the human touch that once helped assess risk and detect fraudsters has to be upgraded with suitable tools. Technology comes to play in the form of big data analytics. Innovative and sophisticated algorithms can now serve in detecting risks automatically and in real time, with ever increasing accuracy and efficiency. Mathematics can help bankers in ways they have never dreamt of before now. This is the only way that we can secure a (relatively) seamless transition to a completely digital banking age.