Investing in Fraud Prevention - Why startups tackling digital crime are key to the future of FinTech

With India cementing its position as the largest digital lending and payments market in the world, the country’s financial technology (FinTech) industry is poised to be leading the digital technological innovation in the foreseeable future. In fact, with the digital lending industry expected to be valued at $1.3 Trillion by 2030 and the digital payments industry expected to reach $100 trillion in payment value, also by 2030, it is imperative that adequate guardrails and safeguards are provided to ensure that cybersecurity threats do not derail the domestic FinTech industry’s growth momentum; hence underscoring the need for resilient measures that could protect consumers and Fintechs from ever-increasing cyber risks.

Cyber fraud prevention crucial across the financial sector

Advanced technologies redefining the way consumers transact via the Internet are exposing vulnerabilities that are being exploited. With online financial fraud and cybercrime attacks on the rise, FinTechs and in turn, their customers are prime targets, with cybercriminals using sophisticated methods like spoofing and phishing to extract sensitive data. While the government has implemented several measures to augment cybersecurity standards, the need for focused startups that use the latest technology and provide cost-effective solutions to tackle this growing menace is growing exponentially by the day.

How cybersecurity startups are mitigating systemic risks

To combat online threats, FinTechs must implement advanced encryption technologies, enforce access controls and perform security audits on a regular basis to identify potential vulnerabilities native to their systems. However, this is easier said than done since it involves investing significant amounts of capital and human resources to build an in-house team capable of deploying security updates for every possible cyber risk.

Additionally, FinTech companies need to ensure compliance with the ever-evolving legal and regulatory landscape which can deflect their focus from their core operations. Instead, startups that offer compliance, cybersecurity and fraud protection services through specialised technology platforms, can alleviate these issues. 

Not only do these startups help find and fix security vulnerabilities, but they can also review software supply chains to deliver real-time intelligence on possible risks that can threaten business continuity. By roping in one or more of these cybersecurity and compliance-focused startups, FinTechs can innovate in their core business while also gaining a contextualized view of all relevant opportunities and risks.

Securing the future of India’s FinTech ecosystem

Since expanding the net of digital financial services remains pivotal to achieving India’s financial and economic growth targets, and since Fintechs will play a crucial role in this formidable target, these Fintechs will have to develop robust fraud and risk frameworks and partnerships as they scale their operations. Similarly, investments in startups that are tackling fraud, risk and cybercrime will have to rise in tandem, providing them with the capital necessary to design and deploy systems that will be critical to secure the country’s financial ecosystems against various risks.

Ultimately, the goal will be to ensure that integrity, trust and accountability is maintained within India’s financial system by preventing bad actors from orchestrating sophisticated cyber scams and minimizing risks that are bound to arise from digital innovation and scale.

By Ravi Kaushik, Executive Director, Head of Asia Investments, Flourish Ventures