The proliferation of new and powerful technologies created a Fintech landscape that is continuously on the move with unexpected solutions that simplify our day-to-day lives. Such is the magnitude of these new businesses that it is expected that by the end of 2022, Fintechs will have a 25 per cent compound annual growth rate and will be valued at US$310 billion. This ever-evolving Fintech landscape pushes CTOs to gear up for new challenges related to compliance, innovation and cybersecurity. Here are some top 3 recommendations that CTOs need to keep in mind for success.
1. Be extra thorough with compliance and data policies
The emergence of decentralised finance has made local governments worried about how to protect their citizens. This has encouraged them to try new regulations and update these to adapt to the rapid changes in the industry. The constant monitoring helps Fintechs take corrective actions in sync with policy changes issued by regulators from time to time.
Data privacy and consent are among the subjects that most concern all governments and enterprises. For instance, in the European Union, the GDPR, General Data Protection Regulation, is the legal framework that sets guidelines for data protection and privacy in the region. The GDPR regulates any business that processes personal data by automated or manual systems.
When collecting and processing a customer's private data, CTOs must ensure that the company's system does not infringe any local law. This can be a hassle, especially when the company is settled in different regions. Choosing the right provider could save Fintechs a lot of money (from future fines) and time in researching and monitoring each country's legislation and helping to prevent future demands caused by any human mistake. For instance, credolab, the leading alternative credit scoring fintech that uses smartphone and web behavioural metadata, works with encrypted and non-PII data ("non personally identifiable information") in full compliance with all international regulations. "Collecting data and complying with privacy laws is not mutually exclusive," says Michele Tucci, credolab's MD for Americas and the company's Data Protection Officer. "Since credolab operates in more than 30 countries, our clients expect a global standard in terms of data governance, data ethics, and data protection. We have built our platform with data protection in mind from the ground up. For example, we start collecting data only after the end user has granted the consent and the permission for our technology to do so; We always anonymise every dataset and depersonalise it to avoid, for example, in case of data breach, any possible reputational risk for our clients; We also store the metadata collected, never personal data, in the country wherever local data residency is required by the law."
Fintechs that take proactive measures to meet local data security and privacy laws and regulations will be better positioned to build superior compliance transparency, mitigating customer privacy risk and building trust.
2. Innovate … but always plan ahead
Fintech solutions remain relevant only if they are in tune with the latest and best technologies available. Whether AI, machine learning or any other advanced analytical model, routine trials are crucial for success. This makes it imperative for Fintechs to stay up to date through relentless product improvement.
However, long IT queues are one of the main reasons for delays in product launches and new software implementations. The list of implementations or developments an IT department must go through before working on a new integration can be a hassle and expensive. In this way, CTOs must be aware of the importance of project planning and prioritisation. For example, instead of building everything from scratch in-house, looking for external integrations could probably help to reach objectives faster. The same old buy versus build dilemma.
3. Don't overestimate your business's cybersecurity
The financial sector is a very tempting industry for hackers, given its high volume of assets. A study performed in 2021 by Sophos, a world leader in cybersecurity, reveals that 34% of financial service organisations were attacked by ransomware. Additionally, 25% of these organisations that had their data encrypted paid to get their information back. As a result, an average of 2.10 million dollars was spent to restore damage caused by these attacks. And it is expected that cyberattacks will cause $10.5 trillion in damages by 2025, according to Cybersecurity Ventures.
However, while fraud prevention is undoubtedly the need of the hour, CTOs know that an overly aggressive fraud detection mechanism may harm customer experiences. This includes slowing transaction speed, requiring customers to perform too many steps before checkout, or worse, flagging good consumers as fraudsters or suspicious. Financial companies need smarter fraud prevention that is real-time, accurate, and quick. They are, therefore, increasingly turning towards artificial intelligence and machine learning-based solutions that make it possible to detect frauds and suspicious activities in real time by scanning through massive volumes of external and internal data. In addition, as consumers increasingly leave their digital footprint in the mobile world, smartphone metadata has emerged as a powerful tool in alternative credit scoring mechanisms and fraud detection.
Change is intrinsic to the fintech ecosystem, so CTOs must find the best way to adapt to them. External providers can be great allies when developing new products that combine cutting-edge technology, protect people's privacy, comply with local regulations, and have robust security systems without affecting the user experience.
About Michele Tucci
Michele is the MD of credolab'sAmericas and its Chief Strategy Officer. Before joining credolab in 2018 as Chief Product and Marketing Officer, Michele worked on international consulting assignments, product management, and business development roles with Capital One, MasterCard, Intesa Sanpaolo Bank, and Telecom Italia Mobile.