This constant push and pull as both sides have tried to always stay one step ahead of the other has been one of the primary forces in the development of e-commerce over the last two decades. In fact it could be said that, both directly and indirectly, criminals have played a major role in shaping the online financial world as we know it.

• Directly

Fraudsters flocked to the birth of the internet like moths to light. As the e-commerce industry formed, criminals saw an opportunity for enormous profits. With the perceived anonymity of sitting behind a computer, a hacker could see the chance to become a criminal mastermind without ever leaving his desk or risking his own bodily harm.

Nobody was safe. Every time a new security feature would come along to block the latest attacks, cybercriminals would get to work on finding another vulnerability to exploit. The industry learned very quickly that they could never let their guard down. Enormous amounts of resources were dedicated to developing new technologies that could be used to predict, identify and intercept attempted attacks and security breaches.

Soon enough it was clear that the e-commerce industry was a mecca of innovation. The arms race between criminals and financial service providers inspired a culture of technological advance. It became the norm for the industry to be ever-vigilant in the quest for self-improvement.

• Indirectly

But a culture of innovation and security isn’t everything. We must not forget that the online financial industry is a service industry. The very real threat of cybercrime is well-known to the public. The long history of fraud in the industry, included many common publicized security breaches, has left a sour taste in the mouth of the consumer.

The fight against cybercrime is one fought on behalf of the customer. Threats lurk all over the internet, and the public has learned to be very careful. That is clearly reflected in the way finance and e-commerce companies design and market their services.

To potential customers, security is a priority; they will only patronize service providers that they trust, so in response to the realities of cybercrime, the industry has developed to make the customer feel secure and comfortable and to be transparent about their services and security practices.

More Related In-depth Article:

The Three Rules of a Secure Online Financial Business 

Ferhan Patel explains the three basic necessities for any online financial business to operate securely, responsibly and profitably. As a Financial Crime Expert with over a decade of experience in executive roles in the international e-commerce industry, Patel has developed a set of guidelines to be considered as the minimum requirements for a responsible security business philosophy.

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In many ways, this has changed the nature of risk management, particularly for the online financial industry.

What is Risk Management: The identification and assessment of potential risks and the application of resources for the purpose of minimizing, monitoring, and controlling the probability and impact of said risks, which can be associated with uncertain financial markets, project failures, legal liabilities, credit risk, accidents, natural disasters or, most likely in our case, deliberate attacks such as those made by cybercriminals.

It is important to effectively prioritize all identified risks because, ideally, those with the greatest probability and/or most damaging level of impact are those that are ranked highest and are dealt with the most quickly and effectively. A risk management solution needs to be able to adequately assess the overall threat to the company’s well-being and enact an appropriately balanced amount of resources to each threat based on its seriousness.

Risk Management Strategies

Avoiding the threat – Eliminate, withdraw from or not become involved in risk.

At the most basic level, avoidance is simply what it sounds like: not performing the activity that carries the risk. For example, performing a credit card transaction online involves the risk that the credit card information could be intercepted by a fraudster. That risk can be avoided by not performing the transaction in the first place. The flipside is that any potential gain, such as the goods or services being purchased by the customer or the profit being gained by the merchant and/or payment provider, is being forfeited. This is the flipside of strategy #4, Retention.

Reduction – Reducing the negative effect or probability of the threat.

Reduction is the preferred risk management solution in the online finance industry. It’s a balance between #1 and #4, involving accepting some level of risk while reducing the likelihood of risk and potential damage associated with it. Reduction acknowledges that sometimes risks must be taken to achieve a greater reward.

Sharing – Transferring the threat to another party.

Risk sharing or risk transfer involves outsourcing some of the risk, for example by taking out an insurance policy, thereby placing some of the burden of potential losses on the insurance company. In the financial industry, this is an unpopular risk management solution because sharing some of the risk with your business partners can damage your long-term relationship and your apparent trustworthiness in their eyes.

Retention – Accepting some or all of the consequences of a particular threat.

It’s important to accept some level of risk in order to turn a profit, but retention is the extreme of this, wherein a company accepts the losses associated with risky business practice as “the cost of doing business.” This is an unsustainable risk management strategy in the financial industry because businesses perceived as risky attract more fraudsters, creating a snowball effect that costs the business financial as well as reputational.

More Related In-depth Article:

Money Laundering and the Importance of AML Compliance

Money laundering is one of the most common forms of financial crime. Due to the digital economy, this crime can send ripples through the entire interconnected financial industry. This article explains the basics of money laundering and the importance of AML compliance – the rules and regulations in place to maintain the financial industry’s policy of anti-money laundering.

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