Digital trust is a loaded word. It is, in essence, the confidence that users have in an organization's ability to protect and handle their digital data in an appropriate fashion. It is an umbrella term that encompasses the security measures, policies, and practices that financial institutions implement to create safe environments for interactions on their digital portals. Trustees are also responsible for protecting customers and establishing loyalty among current and prospective clients.
In the banking and financial services sector today, digital trust is the foundation for all customer relationships. Trust, in digital form, involves several critical components:
- Security protocols that safeguard online data and transactions against unauthorized access
- Privacy measures that protect individuals' rights to control their personal information
- Transparency in data practices and policies
- Reliability in consistently delivering promised services, and
- Accountability in taking responsibility for data protection failures.
As more and more financial services migrate to digital platforms, establishing and maintaining digital trust has become both a competitive advantage and a business necessity. For companies, this means establishing policies and practices that provide a safe environment for digital transactions that protect their users, and establish trust and loyalty among existing and future customers.
Undeniably, digital trust is at risk today. Here are some overarching reasons why.
- escalating cyber threats and sophisticated attack vectors
- third-party risk and supply chain vulnerabilities
- data privacy challenges in ai implementation
- payment platform fraud and digital wallet vulnerabilities
- regulatory compliance and governance challenges
Over the last few years, the financial services sector has been facing an unprecedented surge in cyber threats. According to the Federal Reserve System, some of the top threats currently impacting the financial sector include ransomware, phishing, external-facing application vulnerabilities, system misconfigurations, and Distributed Denial of Service (DDoS) attacks, which often result in the disruption of services.
US and Canadian bank customers have been the target of a huge number of social engineering scams over the last year, as per cybersecurity firm BioCatch. These are sophisticated attacks such as phishing, impersonation scams such as digital arrests, and text message scams that exploit human psychology. Scamsters use advanced technology to bypass traditional security measures and trap victims, especially among senior citizens. Such scams are particularly dangerous for financial institutions.
The rise of Generative AI (GenAI) has introduced new threats to the financial ecosystem. Advances in AI can do much more damage by replicating a person's entire identity. Another prominent threat comes from the very powerful deepfake technology that has the potential to supercharge identity fraud. Banks must now contend with AI-powered attacks that can very convincingly impersonate customers via voice or video, testing typical identity verification methods to the hilt.
Nowadays, most financial institutions increasingly rely on third-party service providers for many services including hardware, software and computing services. This has the unfortunate side effect of creating additional attack surfaces that threaten digital trust. In 2023, over 100,000 credit union members lost access to digital accounts due to an attack on a third-party service provider, demonstrating how supply chain vulnerabilities can directly impact customer trust.
As per the Atlanta Federal Reserve, the FDIC recognizes the danger of such supply chain attacks. Supply chain attacks on third-party providers of technology services are a critical source of risk to the financial industry. Compromised third-party software may result in massive losses due to the disclosure of credentials or confidential data, corruption of data, installation of malware, or application outages.
Managing such risks involves deploying trust and safety services as well as content moderation solutions. Compliance management for financial organizations must go beyond direct operations and encompass their entire digital ecosystem, including vendors.
Banking leaders planning the integration of AI trust and safety measures in banking operations must consider complex issues related to data privacy in AI. With increasingly deeper integration of AI technologies in financial services, substantial amounts of Personally Identifiable Information (PII) and other sensitive data are processed and stored. However, the risks arising from data breaches and unauthorized access also increase significantly as confidential information becomes more accessible by such technologies.
Privacy concerns are also particularly acute in content moderation AI applications. Advanced threats, like jailbreaking or prompt injection, that bypass standard security protocols, or AI model vulnerabilities, might reveal sensitive training data. Such threats may present major risks for effective customer data protection.
Financial institutions must balance the benefits of AI-driven features with stringent AI privacy and security requirements. This includes implementing robust AI data protection measures while maintaining transparency about how customer data is processed and utilized.
Digital payment platforms have become prime targets for fraudsters, eroding customer confidence in digital financial services. A case in point is Zelle: A US congressional report found that JPMorgan Chase, Wells Fargo and Bank of America customers reported losing $166 million to scams on Zelle in 2023, with the banks refusing to reimburse their losses 62% of the time.
The CFPB alleges widespread consumer losses since Zelle's 2017 launch due to the platform's and the defendant banks' failure to implement appropriate fraud prevention and detection safeguards. These failures include insufficient identity verification methods, inadequate tracking of repeat offenders across institutions, and poor investigation procedures for fraud complaints.
The deployment of digital payment solutions without proper safeguards has led to vulnerabilities that fraudsters can actively exploit. Financial institutions face the challenge of balancing user convenience with security requirements while maintaining customer trust.
Regulations for digital financial services are evolving. These create another set of compliance challenges that may undermine digital trust. Regulatory bodies provide a framework to mitigate risks and protect consumers. Key regulations include guidelines on transparency, accountability, and fairness in AI systems.
Financial institutions are now confronted by new challenges because of the advanced data consent requirements, particularly as AI becomes more central to financial decision-making. The complexity of maintaining compliance across multiple jurisdictions, while implementing innovative technologies, may lead to operational risks that can damage customer trust. Compliance management solutions focused on financial crime compliance has evolved as a mature, and very necessary, practice,
Government oversight can play a pivotal role in shaping the ethical use of AI in financial services. The European Union's GDPR has established fines reaching up to 6% of global turnover or €20 million (whichever is greater) for severe violations. Regulatory authorities in the United States, Australia, and India have similarly strengthened their enforcement frameworks, making non-compliance severely penalizable to financial institutions.
As the ‘Set of 5’ outlined above demonstrates, digital trust in banking and financial services faces multifaceted challenges that require comprehensive, and proactive responses. The erosion of digital trust is not merely a technological problem but a fundamental business risk that can destroy customer relationships and institutional reputation.
how Infosys BPM can help?
Combating financial crime while maintaining an effective security posture, and complying with complex laws across multiple jurisdictions is a significant undertaking. Infosys BPM has a holistic approach to managing financial crime compliance, combining advanced technology and expert advisory services. Our comprehensive solutions leverage market-leading platforms and strategic technology partnerships to address many pain points.
