Banks have become one of the top targets for cyber attacks. In today’s internet and digital banking world, cybercriminals don’t have to pick locks to steal from financial institutions. Instead, they target banking systems to access sensitive financial information that can destroy the bank’s reputation and level of trust.
Every year, ransomware cases and data breaches in the banking sector increase. Companies in the financial industry reported 703 cyber attack attempts every week in Q4 of 2021, a 53% increase from 2020. To counter these attacks, banks have taken security measures and strategies to help prevent more data breaches.
Let’s examine the different types of data breaches that banks encounter, the consequences, and the best practices that banks can use to safeguard customers’ data.
What Are Data Breaches in the Banking Industry?
A data breach is an incident that exposes sensitive and confidential information to unauthorized individuals. Once the information is stolen from the system, it can be shared without permission. In the banking industry, a data breach may involve confidential information such as customer account numbers, passwords, or credit card numbers.
When banks encounter a data breach, it can be quite costly. As of 2022, the average cost of such a breach in the financial sector was $5.97 million. For instance, a bank might incur high compensation costs for customers whose information has been leaked. Additionally, these attacks can damage your reputation and affect the company’s private or public shares.
Data breaches mainly occur due to weaknesses in user behavior and technology. Here are the most common types of data breaches:
U.S. banks processed about $1.2 billion in ransomware payments in 2021, triple the amount from the previous year. With ransomware attacks, cybercriminals encrypt the data of the target bank and block access until a ransom is paid. The attackers may also threaten to post stolen data publicly to get the bank to pay the ransom.
Cyber attackers use malicious software to infect banking servers, networks, or computers. For instance, when your system is infected with malware, it slows down or starts experiencing crashes, which might lead to data loss and access to files.
Some cyber attacks take advantage of human errors, such as coding flaws and when information is sent to the wrong people by email. In addition, when devices like bank laptops get stolen, hackers can access sensitive information.
Common Causes of Data Breaches in the Banking Industry
Data breaches don’t always come from the outside; some can be traced back to the bank. Here are the common causes of data breaches in the banking sector.
- Phishing Scams: Phishing attacks use social engineering to coerce people into giving up information such as credit card details and account credentials. Attackers pose like organizations or people from reputable organizations and send malicious links to entice people to share information that might contain personal details.
- Weak Passwords: Banks invest heavily in encryption and tokenization to boost security. However, if employees set weak passwords in the banking systems, the risk of data breaches can increase. External and internal hackers can easily access a weak password.
- Insider Threats: Malicious insiders can be employees, contractors, or vendors who intentionally steal data using their legitimate access. Once the individual has banking information, they share it with the intention of causing harm.
The Best Practices for Preventing Data Breaches in the Banking Sector
As a bank manager, there are several measures you can take to prevent data breaches in your institution. Here are some of the best practices:
Implement a Strong Password Policy
Weak passwords are easy to access. Hackers can easily access your systems if employees use simple and/or memorable passwords. You can set restrictions about reusing the same passwords for different systems, and ensure that your employees get the proper training to create secure and unique passwords.
Additionally, your password policy should include guidelines on regularly updating passwords and not sharing passwords with unauthorized users. A secure password checklist protects your bank from potential data breaches.
Use Encryption and Multi-Factor Authentication
Banks today regularly accept payments through the ACH Network. While these payment methods are secure, setting up additional measures like encryption and multi-factor authentication (MFA) is essential. Encryption makes your customer banking data more secure, preventing leaks during a cyber attack.
Additionally, MFA adds an extra layer of security to prevent data breaches. This form of authentication is categorized into three forms:
- Knowledge factors that are easy to remember include PIN, personal security questions, and secure passwords.
- Possession factors include one-time passwords (OTP), SMS text messages, physical keycards, or software tokens.
- Inherence authentication involves using biometric data that’s unique to an individual, such as fingerprint ID, facial recognition, retina scanning, or voice recognition.
Conduct Regular Security Assessments
You can identify and stop potential attacks by regularly checking your banking systems. You should continuously monitor the banking systems and run a simulated attack to identify areas of weakness. With this information, you can strengthen your banking systems by eliminating vulnerabilities.
How Can Banks Respond to Data Breaches?
What should you do if your bank encounters a data breach? Here are the steps you should take:
- Incident Resource Planning: Your bank needs to have a detailed incident resource plan on how a data breach will be managed from the time it happens. So, once you realize you are under attack, you can follow these steps to protect the other banking systems and restore operations.
- Notification Requirements: Once your bank experiences a data breach, notify appropriate parties, including law enforcement and affected customers. Reporting the situation to law enforcement will help kickstart the investigation. Also, you should let your customers know if their personal data has been stolen.
- Customer Communication Strategies: Your response plan should also include constant communication with all parties. For instance, updating on the progress of the investigation and details about what data your bank might have lost.
Real-World Examples of Successful Data Breach Prevention Strategies in the Banking Industry
Here are some examples of how some banks took security measures to protect customer data and their reputation after a data breach:
In 2019, an unauthorized user accessed Capital One's banking systems and obtained personal information about credit card customers. The institution discovered that Social Security Numbers for approximately 4,700 credit card customers were among the data accessed.
The bank directly notified the affected individuals about the breach and started working with federal law enforcement to recover the data. Since the incident, Capital One has added sophisticated fraud systems to detect unusual activity and protect its customers from such unauthorized actions.
Customers are also encouraged to enroll in credit card alerts to help them monitor any suspicious activity on their accounts.
Flagstar Bank encountered a security breach in 2021. Due to this incident, personal data for about 1.5 million customers was exposed. Flagstar Bank initiated important response protocols as soon as they realized a breach had occurred. However, the threat actors managed to access banking information, Social Security Numbers, and personal information.
To protect their banking systems, Flagstar started securing their banking systems by working with third-party forensic experts. Since the attack, the bank has taken measures to reduce its cyber vulnerabilities. They also alerted all the customers affected by the breach and provided free credit-monitoring services.
Banking institutions are at a high risk of cyber attacks. However, you can protect your customer’s data and your reputation with proper security measures and practices. With advanced banking systems, you also need to adopt payment technologies that are highly secure and reduce your PCI scope.
Get in touch with our relationship managers to secure your systems.