As a community bank stock investor one of my biggest tasks is to read. To stay on top of what is going on in the industry I read all the pertinent releases from the FDIC, the Fed and the OCC. I also read a few bank hundred earnings reports every quarter as well as the transcripts of the company conference calls if they are available. Over the years it became obvious that I needed to stay informed of developments concerning the major lending markets so I added reports from homebuilders, real estate developers and REITs to the mix. When it became clear that fintech was going to change the industry in a meaningful way, I added the reports of public fintech companies to the mix as well.
In reading the fintech reports one thing became very obvious to me. The key to fintech’s future is going to be cybersecurity. None of the innovation and productivity improvements offered by the new technology for banking means anything if the data and funds can easily be hacked, manipulated or stolen. So I have added cybersecurity companies to my reading list and that’s what led me to the transcript of a quarterly call with the CEO of Vasco Data Security Systems.
Vasco is a leader in providing two-factor authentication and digital signature solutions to financial institutions. It does business with many of the world’s largest financial institutions and has more than 10,000 customers around the globe. Founder and CEO Ken Hunt has been involved in the cybersecurity industry since the 1990s and has seen its growth explode as cyber crime became the next big thing in criminal activity. On his most recent conference call he discussed the current trends in cybersecurity with a special emphasis on the banking industry.
The growing use of EMV cards has made it more difficult to steal data and funds during the payment process. While Hunt sees this as a major step forward in protecting the customer’s money, it has not deterred the cyber thieves but merely pushed them in new directions such as mobile and online banking as venues for stealing data and funds.
Hunt pointed out that according to a recent report from consulting firm KPMG nearly three out of four consumers–and almost 90 percent of millennials–use mobile banking. While it is the wave of the future, unfortunately it is also one of the most vulnerable points in the banking process. Staying out in front of potential cyber threats to their mobile banking systems will be critical for banks going forward as the same study points out that most consumers would switch banks if their current institution was hacked and it did not take immediate steps to fix the situation and reimburse their losses. Banks have to offer mobile platforms for competitive and customer preference reasons, but they will also have to spend money to keep the platform secure from what will be relentless hacking efforts by the bad guys.
According to Hunt, biometric identification is going to be a big part of the mobile security solution. We are already seeing some banks and credit card processors use fingerprints and what MasterCard is calling “selfie” identification to control access to mobile banking and payment systems. He cited a study recently released by Acuity Market Intelligence that estimates that by the end of 2018 all smartphones shipped will contain a biometric identification system. Banks that want to stay in the forefront of mobile banking will need to consider adopting such a system if they want to retain a security conscious customer base.
While mobile is a cyber security hot spot, Hunt also referenced what he called the “enduring nature” of hardware-based security. Cyber attacks against banks are not going to go away, but will become more aggressive and sophisticated over time. Hardware-based security programs will need to be constantly updated. Traditional bank robberies have declined in number in recent years. Typically, they are the work of not very bright criminals, and an estimated 98 percent of them are captured and spend a significant portion of their lives as guests of Uncle Sam. Cyber criminals tend to be smarter and have the luxury of being able to attack from remote locations. They will be much harder to catch and their tactics will evolve as protection systems grow stronger, so it is likely that hacking attempts directed at banks will continue to grow a rapid pace.
Fintech is changing banking and it is happening very quickly, particularly in the mobile space. Reading Hunts discussion with investors and analysts reveals that banks that want to survive and thrive will need to take aggressive action to protect customer data and funds as we move into an increasingly digital and mobile world of banking.