Is fintech safe?

by James · March 31, 2023

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Especially if you didn’t grow up with a smartphone, the idea of putting sensitive financial information online can make you feel uneasy. How can you tell if the rapidly evolving “fintech” – or financial technology – space is actually safe?

Fortunately, there are steps you can take to better ensure your security, whether it’s effectively researching fintech companies before signing up to taking certain precautions as a user. By knowing how to best protect yourself, you can enjoy the benefits of fintech without worry.

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What is the consensus on the security of fintech?

In accordance Forbes, “there is no consensus on exactly how secure fintech solutions are across the board.” There is a wide range of fintech companies out there, and which Kiplinger points out, “[w]With change happening at such a rapid pace and new companies popping up overnight, some savers and investors may not feel completely safe using these technologies.” In addition, there have been a number of financial frauds, cybercrimes and data breaches .

Having said that is certain security indications users can look for and certain steps they can take to better protect their personal information.

How can I be safe when using fintech?

If you hope to take advantage of the benefits of fintech while avoiding security risks, Kiplinger offers some tips to keep you safe:

Research the provider and its security. Before signing up for a new account or downloading an app, take some time to do your homework. Often, fintech companies will list their security features and detail how they handle cases of fraud and identity theft. If the company does not, Kiplinger says, “it may be a sign that it is not taking these issues seriously.” Multi-factor authentication to secure accounts, encryption to secure data, and anti-virus and malware scanning are all common green lights when choosing a provider. Some financial institutions may also offer to cover the loss of funds if they are at fault. Of course, none of this can guarantee that a breach won’t happen, but if a company is “careful with its processes and procedures and trains its employees to recognize social engineering attacks, you should have confidence that you are working with a trusted platform.”
Look at the protections offered. If you use a fintech like a bank or brokerage, you’ll want to see what protections it offers. For banks, make sure your funds are FDIC insured. If “it turns out there’s no FDIC coverage or your funds won’t be covered during transfer to the fintech’s partner bank, that’s a good indicator to look elsewhere,” Bank rate prevails. Furthermore, you should dig into which partner bank secures the funds and which coverage limits apply. If in doubt, “a conservative approach would be to keep the level of assets at or below the relevant FDIC or SIPC coverage limits,” Kiplinger suggests. For a brokerage, check to see if there is SIPC coverage, which will provide protection for securities should the brokerage fail. Note that for investments such as cryptocurrencies, these protections do not apply, which is why there is greater risk involved.
Do not overshare personal data. When you sign up for a new app and fill out your personal profile, Kiplinger recommend entering only the necessary information and nothing more. That’s because “the more information you enter, such as date of birth, home address, social security number, etc., the more that information is at risk if the app is hacked or if there is an information leak.” Not to mention there’s also the chance that a company will sell your data. As Kiplinger says, “[i]If you don’t pay to use the app or service, your information is likely to be sold.”
Think twice before sharing passwords. Often, fintech apps want to aggregate information from all your financial accounts so that everything is displayed in one, streamlined place. In such cases, Kiplinger recommends that you “take care to understand how your accounts are linked” – this is often done by using application programming interfaces (APIs) that connect to other websites rather than storing your username and password directly. Still, it’s smart to check in on these links occasionally and remember to stop sharing if you no longer use an app. Longer, Kiplinger says, “sharing a password with another person can invalidate a financial institution’s online security guarantees,” meaning that if “you are caught sharing a password, you may be liable for money taken from your account without your permission.”

Is fintech worth it?

If you feel uneasy about fintech, it may seem easiest to just skip it – but you’ll miss out on a number of benefits by doing so. Fintech “is designed to make life easier for investors,” Kiplinger explains, and “can provide some great features, insights and efficiencies.” For example, you can use the bank’s mobile app to track transactions more easily, or a budgeting app to make it easy to get on the same page with your spouse. You might even get help from a robo-advisor to design an investment portfolio that aligns with your goals and risk tolerance.

Really, as long as you’re mindful of how to engage with technology in a safe and secure way, fintech can “streamline your life and finances.”

Becca Stanek has worked as a personal finance editor and writer since 2017. She previously served as managing editor for investment and savings content at LendingTree, editor at SmartAsset and staff writer for The Week. This article is based in part on information first published on The Week’s sister site, Kiplinger.com.

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