Especially if you didn't grow up using a smartphone, the idea of putting sensitive financial information online might make you feel uneasy. How can you know whether the rapidly evolving "fintech" — or financial technology — space is actually safe?
Thankfully, there are steps you can take to better ensure your security, whether it's effectively investigating fintech companies before signing up or taking certain precautions as a user. By knowing how best to protect yourself, you can enjoy the benefits of fintech without the worry.
What is the consensus on the safety of fintech?
According to Forbes, "there's no consensus on exactly how safe fintech solutions are across the board." There is a wide range of fintech companies out there, and, as Kiplinger points out, "[w]ith changes happening at such a rapid pace and new companies popping up overnight, some savers and investors may not feel totally secure using these technologies." Plus, there have been a number of financial scams, cybercrimes, and data breaches.
That said, however, there are certain safety indications users can look out for and certain steps they can take to better protect their personal information.
How can I stay safe when using fintech?
If you're hoping to take advantage of the upsides of fintech while steering clear of any security risks, Kiplinger offers some tips to help keep yourself safe:
- Research the provider and its security. Prior to 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 instances of fraud and identity theft. If the company doesn't, Kiplinger says, "it might be a sign it isn't taking these issues seriously." Multifactor authentication to secure accounts, encryption to secure data, and antivirus and malware scanning are all common green lights when it comes to choosing a provider. Some financial institutions may also offer to cover any loss of funds if they are at fault. Of course, none of this can guarantee a breach won't occur, but if a company is "prudent with its processes and procedures and trains its employees to recognize social engineering attacks, you should have confidence that you're working with a trustworthy platform."
- Look into what protections are offered. If you're using a fintech as 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 that your funds won't be covered during transfer to the fintech's partner bank, that's a good indicator to look elsewhere," Bankrate advises. Further, you'll want to dig into which partner bank is ensuring the funds and what coverage limits apply. If you have any doubts, "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 would offer protection for securities if the brokerage were to fail. Note that for investments like cryptocurrencies, these protections do not apply, which is why there is greater risk involved.
- Don't overshare personal data. When you sign up for a new app and fill out your personal profile, Kiplinger recommends inputting only the required information and nothing more. That's because the "more information you input, such as your date of birth, home address, Social Security number, etc., the more that information is at risk should the app be hacked or if there's an information leak." Not to mention there is also the chance that a company will sell your data. As Kiplinger says, "[i]f you don't pay to use the app or service, it's likely that your information is being sold."
- Think twice before sharing passwords. Oftentimes, fintech apps want to collect information from all of your financial accounts so everything appears in one, streamlined spot. In such cases, Kiplinger recommends you "take care in understanding how your accounts are linked" — it's often done by using application programming interfaces (APIs) that connect to other websites rather than directly storing your username and password. Still, it's smart to check in on these links every so often and remember to stop the share if you're no longer using an app. Further, Kiplinger says, "sharing a password with another person may void a financial institution's online security guarantees," meaning that if "you're caught sharing a password, you may be liable for any money that is taken out of your account without your permission."
Is fintech worth it?
If you're feeling uneasy about fintech, it might seem simplest to just skip it — but you'd be missing out on an array of advantages in doing so. Fintech "is designed to make life easier for investors," Kiplinger explains, and "can provide some great features, insights, and efficiencies." For instance, you might use your bank's mobile app to more easily track transactions, or a budgeting app to make getting on the same page with your spouse a cinch. Perhaps you even enlist the help of a robo-adviser 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 the technology in a safe, secure manner, fintech can "streamline your life and finances."
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset, and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com.
New Tax Rules for 2023: Download your free issue of The Kiplinger Tax Letter today. No information is required from you.