Before the advent of computers and technology, lenders and banks stored customer and transaction data in physical ledgers and registers. The physical ledgers, along with other confidential documents related to customers, were stored in safe vaults and lockers, which were guarded by armed physical security forces.
Since the advent of computers and subsequently, the internet, the financial and lending institutions’ financial landscape have changed drastically, redefining how customer data is stored. Physical ledgers and registers have become things of the past and have been replaced with powerful databases.
With the digital revolution and the advent of multi-channel banking software and apps, banks and lending institutions have seen a big surge in the number of customers and transactions. As the technologies grew, hackers have become smarter to maliciously attack the vulnerabilities in the financial infrastructure and gain access to confidential data. With the growing number of cybercrimes, banks are faced with a wide variety of challenges in maintaining the customer data safe.
Advanced Roles of Digitisation in Customer’s Data Safety
Below are some of the ways in which digitisation can help banks and lenders ensure customer data safety.
Know Your Customer and Their Business:
Know your customer (KYC) is an important step in any business. Especially concerning banking, it is very important to understand your customer better to enable additional safety to the customer data depending on the risk tolerance of the customer and the net worth.
Even though all customers are equally important for a financial institution, high net worth customers, who have a bigger relationship with the bank, deserve additional safety. A few years ago, KYC used a simple paper form, where the customer was expected to fill in details about their demographics, income details, business, etc. The problem with that approach is, it is easy to copy the data, especially where there are third party agents involved in the collection of KYC.
Today, most of the banks have done away with the paper mode of collecting KYC. With digitation in full swing in most of the banks, it is a good idea to use the services of experts in KYC, who provide services like digital vaults, authentication, and digital signature services.
The biggest advantage with digital vaults is that they use encryption algorithms like Advanced Encryption Standard (AES), RSA algorithm, etc. These digital safety vaults should be accessible only by authorised personnel within the banks after proper authentication. This way, the KYC details are fully safe from any unauthorised access.
Multi-Factor Authentication and Biometrics:
Authentication requires confirming the identity of the person before allowing any transaction with the bank. With the wide variety of banking channels like physical, telephonic, online, mobile, ATM, POS, etc., banks can no longer have a simple user id and password as the authentication technique.
Nowadays, most banks have implemented multi-factor authentication, which includes customer passwords as well as OTP authentication, which is valid only for a few minutes. Some banks and lenders have also started using biometrics as an additional authentication to ensure the customers’ identity.
Advanced Audit Trails and Employee Authorisation:
Banks also need to ensure that only relevant employees have access to the data. Nobody in the bank, including the IT support division, should have access to copy or edit the customer data directly in the database. Even read access should be provisioned only on a need basis through a proper approval mechanism.
The digital platforms or the software used for customer inquiry should be available only to people who support customer inquiries and calls. Even in that case, the digital platforms must have advanced audit trail features that tell data access history. Every bank must have an independent audit division that does periodical checks on the audit trails to ensure compliance.
Distributed Data to Minimise Database Hacks:
Database hacks cost a lot to the financial institutions as well as to their customers. The impact of database hacks increases when banks deal with customer data from the healthcare or financial industry.
In the current days, most banks are transitioning to cloud storage where the data is store in a remote location in a secure data centre.
Even though the data centres have a lot of physical and digital safety like firewalls enabled, the banks also need to take additional measures to store the data safely. Especially, the personally identifiable information of the customers should be encrypted, and the data should be stored in distributed data centres, so that even if there is any database hack, the data becomes unusable to the hackers.
Security by Design in the Internet of Things (IoT):
With the increase in internet-connected digital smart devices, there is a lot of benefit for the banks. Especially the field agents and officers who travel a lot can access customer data from anywhere using smart tabs and digital devices.
Though the advantages are many from the business point of view, this brings a lot of risks since the customer data is being accessed through local networks from outside safe premises. For the IoT to be fully leveraged by the banks, the overall architecture used by the IoT devices should have inbuilt security as part of the design.
The banking software architecture’s overall architecture should take into account all network security methodologies like Antivirus and Anti-Malware, Data Loss Prevention (DLP), Email Security, Firewalls, Endpoint Security, Mobile Security, etc.
With the number of financial transaction channels and the volume of transactions increasing worldwide every day, the number of cybercrime cases has also increased proportionately. With the technology available at hand even for criminals, it becomes far more challenging for the banks and lending institutions to counter-attack the cyber threats. Any illegal access to customer data by hackers not only takes a big toll on the reputation of the banks but also creates irreversible damages to the customers.
Hence, it becomes crucial for the banks and financial institutions to invest enough to build a safe digital infrastructure. Above are some of the important aspects of digitisation, that can help the banks to create a digital fortress and a robust financial system to safeguard customer data.
Finezza provides an umbrella of tools and software for banks, NBFCs, and other lenders to accurately evaluate their clients and manage their financial transaction. Get in touch with us to know more about how we can help your business.