Money Matters: Finding Security—Real and Perceived—in Financial Technology
In the past two years, hackers have breached Target, Sony and 100 banks in 30 different countries. But even as security threats loom, the demand for financial technology continues to grow.
According to Bill McNulty, entrepreneur and organizer of the DC FinTech Meetup, increased adoption of online and mobile banking services shows that people are willing to trust apps with their financial information because they see significant value in the services provided. Even so, apps don’t offer the same sense of security that a brick-and-mortar bank does.
“In the fintech space, security has to be one of your very top concerns in whatever you do,” McNulty said in a phone interview. “Essentially, financial tech is a business sold on trust.”
Growing consumer trust is one key element behind the growing fintech industry. Other factors include the financial crisis, which created opportunity for innovation, and the rise of consumer Internet, says Karl Antle, a partner at New York-based fintech accelerator Value Streams Lab.
Now that these factors are all occurring simultaneously, it’s “the right time for this new sort of evolution to occur in the industry,” Antle said in a phone interview.
Still, evolution is a slow process: Since consumers prioritize security when it comes to their money, the financial industry is highly regulated, according to Antle. For example, the Gramm-Leach-Bliley Act requires fiscal institutions to protect financial and private information. However, the GLBA was enacted over 15 years ago—before computers really started to manage financial data.
“We’re struggling to adapt the modern financial system that’s more technology based, based upon a set of rules that were created in the first half of the last century,” says Antle. “I think that they face the challenge of trying to work within a framework that wasn’t designed for what the current-day startups are doing.”
That opens the door for startups such as Plaid, which serves as a middleware by providing extensive security for startups, saving entrepreneurs valuable time and money.
“They built a very secure system that upped its financial services standards,” Antle said. “By connecting to their API, the startup—which is a little bit more lax in terms of its security policy—isn’t putting it’s potential customers at risk.”
With these innovations, financial technology has already made banking, payments and tracking transactions more convenient and accessible. Yet, the remaining challenge is to make financial services user-friendly while establishing trust.
That’s the challenge for Beyonic, a fintech startup that provides alternative payment methods to businesses in East Africa—meeting not only national, but global demands for cashless transaction services.
Beyonic founder Dan Kleinbaum says that it took 18 months to establish enough background knowledge to be able to answer his customers’ security-related questions. Still, convincing people to trust new, up-and-coming technology with their money remains a challenge.
“People feel secure when it’s in a safe,” Kleinbaum said. “It’s very hard to build that same trust that a lock and key gives you when you’re dealing with online systems.”