Any time your company operates online, you expose yourself to vulnerabilities. As businesses increasingly rely on new technology to improve operations and enhance customer experience, they expose themselves to greater digital risk.
In this article, we'll review what digital risk is and why managing digital risk is essential. We’ll also look at different types of digital risk and provide action items you can take to protect your business operations.
What is digital risk?
Digital risk is the potential danger that threatens companies when they adopt new technologies. In other words, it’s the unintended consequence of digital transformation, the process of replacing manual and traditional methods of doing business with newer, digitally-based modes.
The process of monitoring and addressing these risks is digital risk management — and it should be top of mind for every business regardless of industry.
Digital risk comes in many forms:
- Cybersecurity
- Automation
- Compliance
- Third-party
- Data privacy
- Resilience
- Workforce
Let’s delve a bit deeper into each of these for a better assessment of digital risk and how it impacts every part of a company’s decision-making.
Cybersecurity risk
A cyber risk specifically involves cybercriminals who are looking to gain access to sensitive information. They may conduct cyber attacks to steal this information. They then use this information for malicious purposes — for example, identity theft (to use for personal benefit or to sell on the dark web) or extortion (demanding money from a business while holding data for ransom).
These types of digital risk can disrupt workflows significantly, not to mention erode customer trust in a business that falls victim to such cybersecurity breaches.
Automation risk
As companies digitize more aspects of day-to-day functioning and opt for process automation, it’s imperative that all the moving parts are efficiently integrated. In other words, they need to speak to — and work with — each other.
If companies aren’t careful, automation can create holes in a business’s security plan. Because automated technologies may not be diligently monitored by humans, a potential security breach could take even longer to detect, leaving the window open for increased exposure and vulnerability.
Compliance risk
This risk refers to any new technologies that come with rules and requirements. For instance, new banking technology must meet regulations set by the Federal Financial Institutions Examination Council. Companies must make sure they are following regulatory requirements for areas like data retention and business operations.
Third-party risk
Third-party risk occurs when you outsource parts of your business to third-party vendors or providers. If one of these third parties is vulnerable, your company may be vulnerable by default. A zero-trust policy could help mitigate some of this risk, which essentially assumes that everyone and everything is a digital risk.
Data privacy risk
Data privacy risk involves the risk of exposing sensitive data of anyone you work with, or have information on. This can include employees, vendors, partners, and customers. Cybercriminals tend to seek personally identifiable information (PII) like name, physical address, email, passwords, date of birth, and Social Security number.
Resilience risk
Resilience risk refers to the general difficulty with adopting new technology. Whenever your company implements new technology, you must work to minimize any bumps in the road, rebound from challenges, and keep business operations intact.
Workforce risk
A workforce risk is any issue that could disrupt your workers and operations. An example would be a webinar or virtual chat that is disrupted by an outside third party. Email phishing would be another component of this threat landscape.
Why is digital risk management essential?
Data breaches can be incredibly costly to companies. A 2021 report from IBM and the Ponemon Institute found that the average cost of a data breach spiked to a high of $4.24 million. Part of this was driven by the pandemic. Employees shifted to a remote work model and consumers began purchasing more goods online. The study indicates that IT initiatives lagged behind these changes, thereby creating a security risk.
The fallout from a data breach is not strictly monetary. Data breaches can also deteriorate customer trust, which is the lifeblood of any business.
The IBM Report found that, on average, 44 percent of data breaches reveal customers' sensitive data. The incident response on these breaches is also slower than average, taking 250 days to detect on average. When you consider that more than 90 percent of global online users have at least one significant concern about data privacy, it's easy to see why companies need to prioritize their digital risk management strategy.
Modernizing digital risk management can help protect against these increasingly prevalent risks. Examples of modernization include adopting a zero-trust security approach, relying on automation, and installing an incident response team to respond to threats in real-time.
Potential solutions to reduce digital risk
Digital risks exist everywhere. Cyberattacks can impact a company in numerous ways, from its social media profiles to its supply chain. But one area that businesses need to be particularly concerned about is its financial system.
This is especially true as more companies adopt fintech (financial technology) and embedded finance. Fintech is the direct integration of technology with financial services providers while embedded finance allows any company — regardless of industry — to directly offer financial services to its customers.
As such, it’s not simply nice to know what security measures are offered by your embedded finance provider — it’s essential.
Below are some security solutions that can help with digital risk mitigation.
Artificial intelligence (AI) and machine learning
AI and machine learning leverage the power of predictive tools to monitor patterns and trends, thus providing better digital risk protection. Algorithms have the ability to catch patterns and trends that would otherwise take days or weeks for humans to flag. These automated tools can automatically detect data anomalies and potential vulnerabilities in real-time, ensuring you have 24/7 protection.
Fraud and risk management
Fraud and risk management tools should offer end-to-end solutions to block fraud and ensure that only legitimate customers are the ones using your services. This can include something such as two-factor authentication (2FA), which requires your customers to enter secondary information to log in to an account. As these tools often are built for a cautious approach, there are instances where human-driven manual review is required. Solely relying on fraud tools may not completely remove risk.
Certified protection
Another major concern when conducting online transactions is the Payment Card Industry Data Security Standard (PCI-DSS). You should also implement System and Organization Controls (SOC). Having these measures in place further ensures compliance and security for your clients while also guaranteeing that customer data is safe when transmitted or stored.
Know-your-customer (KYC) solutions
KYC solutions are robust systems that help ensure you are only dealing with legitimate customers, blocking fraudulent activity in real-time. Examples include checking government watchlists, adverse media checks, and international sanctions screening. Verifying customers in this manner is also a form of fraud and risk management. Depending on the financial program being offered, varying levels of KYC is required.
Identity management
Embedded finance platforms can offer biometric verification and other similar tools to help secure customer onboarding and reduce fraud. An example would be fingerprint authentication or facial recognition via selfie.
Anti-money laundering (AML) monitoring
The best embedded finance platforms offer Anti-Money Laundering engines, which ensure real-time information security. You'll receive reports about suspicious transaction patterns and unusual activity. This allows you to organize and manage investigations in real-time.
Back-end support
Though AI and machine learning are very helpful in keeping your company and your customers safe, they alone don't remove all risk. You should also have customer support to assist with fraud operations and regulatory compliance requirements. Look for an embedded finance platform that has an in-house compliance team, led by a Chief Risk & Compliance Officer.
Case management
Understanding and mapping use cases and examples can aid in designing a comprehensive security and data protection program. Are there discernible patterns over longer periods of time? Alternatively, are there customer segments that may appear to be fraud that are not? Those individual cases can frame the most effective risk management program by using real data and examples.
Protect your company with digital risk management
As more companies use embedded finance to grow revenue, it's more important than ever to think about the digital risk management strategy these providers offer. Anytime you adopt new technology, risk and compliance are part of the overall equation.
If you’re considering adopting an embedded finance platform, let Alviere help you. As a licensed, regulated financial entity, Alviere takes security and safety seriously, with a robust technology platform coupled with dedicated compliance teams and enterprise expertise.
