How cybersecurity can ensure safe and swift digital lending transactions

Digital lending is swift, convenient and instant approvals directly through mobile phones.

Lending is one of the promising sectors as the digital revolution continues to transform the financial services sector in India. It has shifted from a traditional and tedious face-to-face approach to streamlined digital platforms. However, this shift brings unique cybersecurity challenges. Factors like the penetration of smartphones and increased internet connectivity across India have fuelled the spike in digital transactions, thereby creating an enabling environment for lenders and borrowers. The presence of cyber threats has led to cybersecurity emerging as the most essential protective mechanism or the 'sword of salvation' to guard lenders and borrowers in this constantly changing digital lending landscape.

The shift from traditional to digital lending

Traditional lending was slow, demanding personal sit-downs and paperwork. Digital lending is swift and convenient, and facilitates instant approvals directly through mobile phones. Through online platforms, BNPL, peer-to-peer lending, and personal loans are now offered by fintech firms and banks in the competitive lending market. While driving innovation, digitalisation exposes lenders to cyber threats; hence, cybersecurity has now become an essential part of modern lending.

Also read | RBI digital lending guidelines

Threats faced by digital lenders and customers

Digital lending platforms handle immense volumes of sensitive and crucial financial data, from personal identification information (PII) to detailed credit histories. As a result, these platforms are lucrative targets for cybercriminals, who exploit vulnerabilities for financial gain. Key threats in the digital lending sphere include:

Data breaches: Cybercriminals use phishing, malware, and other tactics to gain unauthorised access to personal data, putting customers’ financial health at risk. Their implications are more than loss because the stolen identity could be used to impact their creditworthiness.

Account takeover attacks: Fraudsters use insecure mechanisms for authenticating customers to gain unauthorised access to the borrowed funds or make unauthorised transactions using the customer's accounts. These lead to the blemishing of a lender's name.

Application frauds: These involve the creation of duplicate identities for fraudulent purposes — primarily applying for loans that end without payments. Digital loan facilitators mostly lack strong means to prevent this kind of application fraud.

Ransomware and Denial of Service (DoS) attacks: Hackers can lock a platform’s data and disrupt services until a ransom is paid. For digital lenders, such an attack can mean loss of access to crucial data or a halt in operations, impacting significant damage to the users.

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Choosing the right digital lending platform

As more and more consumers navigate digital lending, cyber awareness and protection become instrumental in shaping the outlook of the industry. Here are essential factors to consider when choosing a digital lender:

Regulatory compliance: Established lenders adhere to a set of guidelines and regulations to offer payment protection or even other relevant aspects to be GDPR compliant, however, their emphasis is strictly on data protection.

Data encryption and secure communication: Users should seek sites that encrypt their private data and apply secure communication protocols such as HTTPS. Data encryption guards the private and financial data of a consumer from interception both during transmission and storage.

Multi-factor authentication: Sites providing MFA provide an additional layer of security that guarantees access to only the account owners. Users should, therefore, prioritize sites that provide robust authentication measures since it limits unauthorised access.

Transparency and reputation: A reputed digital lender will be transparent about its data handling and privacy practices. Consumers should research platforms’ security track records and read customer reviews to make informed choices.

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The shared responsibility model – Lenders and consumers

Cybersecurity in digital lending isn’t solely the responsibility of the lending platform; it’s a shared duty that involves both lenders and borrowers. Here’s how this partnership can strengthen cybersecurity:

Concrete password practices: Avoid reusing passwords across platforms and create complex passwords that are difficult to guess.

Be vigilant about phishing attempts: Consumers should be cautious of suspicious messages or links and verify the authenticity of communication from their lender before proceeding further.

Keep software updated: Regularly updating apps and devices ensures users benefit from the latest security patches, reducing exposure to unknown vulnerabilities.

A secure future for digital lending: As digital lending matures and evolves, cybersecurity becomes crucial in its success. Therefore, a shared responsibility model implemented by lenders and consumers together will form the most basic foundation for promoting growth and trust in an environment which encourages innovation within this market. Threats may crop up, but there exists a proactive measure which might protect the future of the digital lending sphere that was promised to all those potential customers: one through convenience, speed, and ease of access.

The writer is CEO, CASHe

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