Fintech Encryption Standards

Over the years, fintech has evolved in terms of how the companies operating in the sector handle money, providing new solutions concerning investments, transactions, and fund management. Considering the importance of such companies increasing, with more and more people looking to leverage technology, executing robust security measures is essential.

Indeed, fintech companies handle sensitive information, which makes them a prime target for hackers and fraudsters. To protect the confidential financial and personal data and prevent misuse or unauthorized access, organizations in the sector, including banks, must adhere to the relevant fintech encryption standards. 

Encryption lays the foundation for data security, even if an organization is not highly dependent on technology for running operations. This security technique involves encoding data so that unauthorized people cannot read it even if they gain access somehow. Simply put, organizations use the method to convert readable plaintext or data into ciphertext. Because of the method, individuals will only be able to decipher the encoded data by using an encryption key. 

Besides ensuring data privacy by preventing unauthorized access, encryption can help companies maintain data integrity. This is extremely important now, especially considering that various companies now utilize artificial intelligence and machine learning models, which comprise highly valuable datasets. Indeed, creating such data sets can cost millions, and if they end up getting manipulated or tampered with, a company can incur substantial losses. 

Additionally, adherence to the fintech compliance standards concerning encryption is vital for organizations to avoid regulator fines or penalties. The importance of ensuring compliance is increasing further with the introduction of stricter data protection rules and regulations across different geographic jurisdictions and industries. 

Another key aspect that highlights the importance of encryption is customer trust. Ensuring data security in fintech through this method boosts customers’ confidence in any fintech company. After all, clients will likely trust a business with their sensitive financial information when they know that the company has robust security measures in place to protect the data. 

If any organization fails to adhere to the fintech encryption standards, it can damage the company’s reputation. Moreover, it can result in substantial losses and legal consequences. Hence, it is vital that financial institutions seek solutions from a reliable fintech software development company to ensure data security.

As noted above, encryption is a method that involves converting confidential data into secreted codes using cryptographic algorithms to conceal the true meaning. It minimizes the risks linked to data accumulation, thus safeguarding the data from theft and tampering. 

As a result, in fintech, this method can be key in preserving the integrity and confidentiality of financial transactions. One can better understand what makes encryption with regard to data security in fintech work by going through the following points: 

• Confidentiality: This method can help ensure that only authorized organizations or individuals can access the sensitive data. 
• Authentication: Companies may integrate this technique into their authentication mechanisms. It can help in verifying the communication party’s identity.
• Non-Repudiation:  Via encryption, events are able to ensure non-involvement in sending or growing certain data. 

Data Integrity: Encryption can ensure that the encrypted information is not subject to change at the time of transmission. Note that unauthorized alterations to the encrypted data will lead to it becoming undecipherable. Or, post-changes, the data cannot pass integrity checks. 

In this section, let us look at the different fintech encryption standards, protocols, and technologies that banks are utilizing to safeguard the data of their clients. 

#1 - TLS (Transport Layer Security)

This widely popular protocol facilitates financial data security and privacy for communication happening on the internet. A key use case of Transport Layer Security is the encryption of the communication between servers, like web browsers and web applications. In other words, it safeguards data from interception at the time of data transmission between the device of a user and the fintech organization’s server. 

#2 - AES-256 Encryption

The AES-256 data encryption standard is one of the most robust standards when it comes to data security. It involves the use of a symmetric encryption algorithm to transform plaintext into ciphertext. Note that this algorithm utilizes a 256-bit key for the conversion. Financial institutions, including banks, use this encryption to protect the data of their clients. 

#3 - End-To-End Encryption (E2EE)

E2EE refers to a secure communication method that protects data from unauthorized an unauthorized party while it is being transferred from a device or end system. In other words, it ensures the participation of only communicating users. Because of this method, a financial institution is able to protect clients’ data even if its servers are compromised.  

While many people may say that using encryption technologies is smart, in reality, it is a necessity. After all, by adhering to the fintech compliance standards, companies can keep clients’ confidential data safe and avoid legal complications or penalties. 

If companies do not use encryption to safeguard their financial and personal data, users may start to lose their trust and stop opting for their services. After all, in the case of non-adherence to the fintech encryption standards, the likelihood of fraud and security breaches will rise significantly. Moreover, as a result of such illicit activities, clients and the bank can incur substantial financial losses. 

Sometimes, one may hear that despite using encryption, companies experience data breaches. One of the main reasons behind this is the utilization of outdated or weak encryption protocols. Implementing such protocols can result in significant data breaches, which, in turn, damage the organization’s reputation. Moreover, such practices can lead to compliance violations that can lead to the company paying hefty fines. 

Because of these reasons, it is vital that data encryption in financial technology is used following the best practices.  Other key reasons why data breaches may occur despite encryption are the utilization of incorrect algorithms or cipher modes and the improper handling of key management. Improper key management may involve utilizing the only a single key for all the data, keeping the key unprotected, and not changing the key.  

Quantum computing is now posing serious challenges for popular fintech encryption standards like the Rivest-Shamir-Adleman or RSA and Elliptic Curve Cryptography or ECC. The development of these standards took place without taking into account the capabilities of quantum computing, which has the potential to crack various algorithms that many organizations consider secure.

Out of the standards popular worldwide, only AES continues to be the most secure. That said, quantum computing has the capabilities to crack it in significantly less time than classical computers. Thus, creating new fintech encryption standards that involve the use of quantum-safe cryptography is crucial. This form of cryptography recreates the cryptographic vault, thus safeguarding data from both classical as well as quantum attacks.  

When it comes to fintech, besides algorithms, the human aspect plays a vital role. After all, there is always the possibility that employees’ actions lead to data breaches. There can be different reasons for the unauthorized access, for example, falling prey to phishing scams. 

Also, there might be people within the organization who pose a threat in terms of data security. That is why any business has to take the necessary measures to eliminate insider threats. Such measures may involve providing training to employees from time to time to keep them updated regarding the evolving threats.

Also, fintech companies must take measures to teach their clients about safe and secure engineering awareness and password habits. In that regard, gamified learning accompanied by rewards for completing security training and strong passwords can be quite effective. Indeed, if organizations can make their clients aware of the different security measures, the latter can adhere to the best practices to keep their personal and financial information safe.

The following pointers can give a clear idea regarding the future of encryption in financial technology:

#1 - Homomorphic Encryption

This type of encryption involves converting information into ciphertext. This ciphertext can be worked with and analyzed as if the data were in the original format. It allows for conducting complicated mathematical operations directly on the encrypted data without impacting the encryption. Homomorphic encryption can be extremely important in cloud computing, allowing for encrypted data storage within a public cloud. This, in turn, can enable fintech companies to make the most of the analytic services offered by the cloud provider. 

#2 - Blockchain-Based Security

Blockchain-based security has been quickly changing the landscape concerning data security in the fintech space. The technology provides a tamper-proof and robust data protection approach by transitioning from centralized systems, which are increasingly prone to unauthorized access, cyberattacks, and data breaches. The decentralized approach of blockchain with regard to data security and management has the capability to address various limitations related to traditional methods.

#3 - Biometric Encryption

In the fintech space, biometric methods, for example, facial recognition, voice authentication, and fingerprint scanning, are rapidly becoming popular options with regard to data security. Contrary to conventional passwords and two-factor authentication, which can get compromised by cyberthreats, biometrics offer better security. 

Note that biometric authentication involves analyzing one-of-a-kind biological traits utilizing advanced algorithms to make sure that only authorized users can access the data. This technology mitigates the possibility of fraud and account takeovers, providing fintech organizations with an easier and securer way to safeguard financial data. 

Although fintech companies may think that they have a strong tech team that has great potential to build solid encryption solutions, experts recommend avoiding DIY because of the associated risks. 

After all, any flaws in the encryption solution developed can compromise data privacy and integrity. With evolving challenges, like quantum computing, building robust solutions will require a detailed understanding of cryptography, which employees within the organization may not have. Also, the in-house solutions may fail to meet the fintech encryption standards set by regulatory bodies. Considering many things that can go wrong, it is best to avoid the DIY approach. If something goes wrong and the data of clients is compromised, the reputation of the company may be subject to irreparable damage. Moreover, client confidence will be severely impacted in the case of a data breach. 

Ideally, fintech companies should get in touch with a fintech software development company that can provide effective solutions to maintain data privacy and integrity. Generally, these companies employ experts who are well-versed in cryptography and have the knowledge and specialization required to come up with solutions that keep sensitive data safe while ensuring adherence to the fintech compliance standards set by the relevant regulatory bodies.  

Data security has become one of the key priorities with the rapid growth of the fintech space and the increasing dependence on technology. While fintech companies typically implement encryption protocols to safeguard data, adopting a multifaceted approach that involves different technologies like artificial intelligence or AI and cloud security is vital to prevent fraud or cyberattacks. 

Over time, the challenges will evolve and new threats will emerge. Hence, companies must take the necessary measures and use advanced solutions that can eliminate those threats and maintain data privacy, while ensuring those solutions meet the set fintech encryption standards.