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Is Security the Biggest Threat to Alternative Lenders?

 Published: September 30, 2019  Created: August 29, 2019

By Natasha Lane

The alternative lending market continues to expand and grow in popularity, providing solutions for a vast number of small businesses and rising startups. With fintech lending now widely embraced by the millennial population, the stakes have grown higher and the competition tighter.

To stay in the game, digital lenders face incredibly demanding expectations regarding their use of dynamic data and automated systems to speed the underwriting process. These expeditious-decision software systems most often rely on support from third-party vendors, inviting a whole range of vulnerabilities for hackers to exploit.

Considering the buzz surrounding alternative lending, its complete reliance on tech and the multibillion-dollar transaction value, it comes as no surprise that digital lenders are a particular target for cybercriminals. So what can online lenders do to address the growing cyber risks and protect their enterprises as well as their customers?

A Culture of Cybersecurity

As with every other industry, cybersecurity in the finance sector starts with the employees. Hackers know that human error and negligence is the easiest way into a system, and that’s given rise to the vast majority of data breaches.

Proper employee training and motivation, testing and ongoing education are well worth the investment and undoubtedly cheaper than what it would cost to deal with the aftermath of a cyberattack. From elementary practices such as improving password security to understanding how cybercrime is evolving and following up on the latest types of threats, the best approach is to not just teach cyber awareness but to make it a companywide mindset.

Detecting Fraudulent Applications

As the loan process has been accelerated significantly, applicants have come to expect impressively short turnaround cycles. With the credit-decision process becoming more automated, the pressure falls on digital lenders to determine the best way to utilize security filters. They need to maximize efficiency, preserve the simplicity of the application process and eliminate friction, all the while accurately identifying fraudster applications and effectively filtering them out.

It’s a balancing act, in which underusing security measures increases the risk of cyberattack but overusing them can lead to overcomplicating the process for customers, thus risking to lose them to competitors.

One of the best solutions to this issue is for lenders to participate in a global shared intelligence database that flags stolen identities in real-time. Along with the basic security protocols for anti-money laundering and a customer identification program, this advanced fraud detection tactic also can be integrated into an automated system. As a result, lenders can detect fraud effectively and prevent it without obstructing the user experience for legitimate applicants.

Managing Omnichannel Account Access

Just like in every other industry, the lending sector faces a customer base that prefers using multiple devices to access their accounts. Customers expect and demand omnichannel account access for a more convenient experience, but this presents a window of opportunity for cybercriminals. They’ll exploit the visible trend of cross-device activity for fraudulent transaction schemes, either by creating multiple accounts on one device or using multiple devices.

It’s crucial for lenders to identify these scenarios in real-time so that they can prevent fraud without disrupting those legitimate customers using multiple devices. Authentic online lending account holders need to be protected quietly and invisibly—misleading and disruptive fraud alerts are certain to reduce the user experience and cause frustration that can cost you a customer.

That’s why lenders need to rely on sophisticated software that provides real-time identity updates. The more insight and real-time data you have into each user’s digital identity, the better you’re equipped to differentiate between fraudulent and authentic activity—again, without disruptions to the user experience. A comprehensive customer profile needs to include:

  • Personal and business personas.
  • Multiple users.
  • Multiple email addresses for each user.
  • All used devices.
  • Physical address.
  • Location geo-targeting.

Layered Cybersecurity Solutions

Unauthorized account access is a critical issue this market faces. One of the biggest contributing factors to this issue is that users will have the same credentials for different accounts. If a hacker finds their way in, they’ve essentially got the digital master key. They can use these stolen credentials to access existing online lending accounts, initiate loan applications and siphon open credit.

Once again, a global shared intelligence database will come in handy to increase protection by helping prevent account takeovers. Lenders also need to utilize a layered cybersecurity solution, starting with two-factor authentication. In tandem with cloud-based solutions, this will ensure you’ve taken reliable security measures.

Cybersecurity is only going to be a bigger concern for small-business lenders as the market continues to generate buzz. Building strong foundations on which you can thrive is vital to each individual enterprise as it is to the sector in general. By implementing the most effective security solutions available and encouraging industry self-regulation, members of the financial sector can keep up with the evolving risks of the fintech era.

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