Fintech united: Building a safer ecosystem

Digital lending has gradually become the future of finance with minimum documentation and instant access to credit. According to recent stats, fintech companies disburse Rs 10 Cr in loans during FY24, documenting a 35% increase compared to the previous year. By leveraging technology, digital lending companies solve the problems plagued by traditional finance and tap into the underserved segments of the population which may have been excluded from traditional systems. The digital-first approach in the lending space unveils a plethora of immense growth opportunities to offer greater convenience for borrowers and improve financial inclusion.

India has a higher fintech adoption rate of 87% with 13,500 companies, which far surpasses the global average of 64%. However, as the adoption continues to grow, it increasingly becomes vulnerable to surging cyber threats. A survey report anticipates a loss of Rs 20,000 Cr by Indian entities due to cybercrimes in 2025. A significant surge in data breaches, identity fraud, and sophisticated hacking techniques makes security a critical priority for every user.

The ripple effect of security threats

Cybersecurity, especially in digital lending, is not viewed in isolation. If any breach occurs on one platform, it has a ripple effect across the ecosystem, affecting customer trust and regulatory trust. On the other hand, in digital lending processes, personal and financial data is transmitted and stored online, which becomes an attractive target for cybercriminals.

Subsequently, these silos prevent the exchange of critical threat intelligence, which allows bad actors to breed on vulnerabilities across platforms. When stakeholders work in collaboration, it breaks down these silos and builds a resilient and adaptive security environment. To address these rising vulnerabilities, many fintechs and digital lenders are turning to Zero Trust Security frameworks. Unlike traditional perimeter-based approaches, Zero Trust assumes no user or any system is trustworthy by default. It emphasizes strict identity verification and least-privilege access across the infrastructure.

To secure the ecosystem end to end, the Zero Trust Security framework focuses on covering all aspects including application security, API security, cloud, data, network, endpoint, and IoT security. This implies that industry collaboration becomes not just a competitive advantage but a necessary strategy to safeguard digital lending infrastructure, enabling a faster way of detection for phishing, malware, or fraud patterns.

The need for regulatory alignment

Regulatory alignment is another critical area where industry collaboration plays a pivotal role as digital lending processes ethically span across multiple regulatory frameworks. This increases the possibilities of confusion and inconsistency in ensuring compliance. Industry collaboration can act as a catalyst between regulators and companies, ensuring practical rules. Moreover, stakeholders and key industry players can push for regulatory reforms to promote innovation and uphold consumer protection. This alignment in compliance goals makes it easier to implement stringent practices uniformly, which reduces gray areas that cybercriminals might exploit.

Collaboration for joint research and innovation

As part of industry collaboration, digital lending and fintech companies can potentially undertake joint research initiatives and pilot programs to lead the development of tools and practices. This can result in the development of advanced fraud detection algorithms and identity verification systems. Resources and knowledge, when added to a pool, even smaller players get on the security standards that were once out of their reach. Hence, the democratization of security tools ensures that the entire industry can prevent and combat emerging threats.

Industry collaboration for synergy

The industry collaboration in the digital lending ecosystem is instrumental in building and retaining consumer trust. Companies working together to protect their data and ensure safe transactions enhance the credibility and build confidence in digital financial services. When financial institutions, cybersecurity firms, and regulatory bodies join forces, they create alliances to track and report malicious activity by also establishing uniform security standards and protocols.

Apart from this, during inconsistent phases, some companies may use advanced encryption and AI-based fraud detection. This demonstrates a unique opportunity for creating a highly secured ecosystem in inconsistent environments, especially when some companies rely on outdated manual processes. On the other hand, collaboration can redefine baseline standards for data encryption, API security, and user authentication, fortifying the collective defense.

Bottom line

Digital lending is continuing to reshape the financial industry. Working in industry collaboration further ensures that no single or small player in the industry is deterred from capitalizing on the potential of technological prowess. This also calls for implementing frequent updates, internal awareness, and adopting robust governance and security architectures. Additionally, threat intelligence sharing, physical security protocols, and continuous user training must become integral to every fintech’s security culture to effectively combat evolving cyber threats.

Author: Sunil Kumar Dinodiya, Chief Information Security Officer, RupeeRedee