Why SOC 2 is Critical for Fintech Companies
April 2023 Update – ForwardAI Achieves SOC 2 Type II Compliance Certification
Technology has advanced significantly in the past decade, and so has the complexity and need for regulatory and security compliance. Banks and financial institutions are constantly storing and interacting with sensitive consumer information. With collaborations between fintech and financial institutions directing the momentum in the financial space, financial institutions needed a standardized framework to verify that the partners they work with are securely handling their client’s information.
The System and Organization Controls (SOC) 2 audit report is commonly known and often viewed as a gold standard compliance indicator in the financial service industry. Developed by the American Institute of Certified Public Accountants’ (AICPA), the SOC 2 information security standard is an audit report on the examination of controls relevant to the trust services criteria categories covering security, availability, and confidentiality.
Nowadays, most companies understand the value of security and claim they are. But how much weight does a claim hold without concrete and objective proofs like a SOC 2 report? The SOC 2 report is a long and rigorous process, self-imposed and pursued by companies that take data security seriously. Although the SOC 2 report will vary between companies due to organizational differences, it is evaluated based on multiple criteria to ensure the company is adhering to strict IT security protocols, protecting its systems and data from unauthorized access, and minimizing incident impacts when needed.
There are several reasons why fintechs need to be proactive about becoming SOC 2 compliant, but the most critical reason above all is that it demonstrates a high level of information security framework in place. When financial institutions look for a fintech partner, they will often look for companies that take information security seriously. Being SOC 2 compliant means that the company has dedicated valuable resources and undergone in-depth scrutiny to ensure they uphold a high standard for their partner.
Banking and financial data can contain some of the most sensitive information anywhere and, when mishandled, can cause significant monetary losses and long-lasting reputational damage in the public eye. An IBM report found that the financial industry has the second-highest average total cost of a data breach out of all sectors, averaging $5.72 million per breach. In the case of a mega-breach consisting of over 50 million compromised records, the cost jumps to an astonishing average of $401 million for all industries. For instance, the infamous case of the Equifax data breach in 2017 cost the credit bureau giant $700 million. It all snowballed from failures to follow security protocols and fix a widely known vulnerability in their systems for several months.
The same IBM report stated that 38% of data breach costs incur from lost business shares. This cost includes increased customer turnover, lost revenue due to system downtime, and increased cost of new customer acquisition.
Being SOC 2 compliant can add an extra layer to customer trust. A compliant company is significantly less likely to suffer from a data breach and the substantial incurred costs. At the same time, its brand reputation and equity will also be much better compared to companies that aren’t SOC 2 compliant. The result? SOC 2 compliance will bring in more business, whether you’re a financial institution or a fintech company.
Now that financial institutions are favoring fintech companies to deliver more functions and increase service offerings, it’s no surprise that they are incredibly selective when it comes to choosing whom to work with. With an ocean of fintech companies to choose from, the SOC 2 compliance allows any fintech to stand out against non-SOC 2 compliant competitors, giving financial institutions the confidence they need. In today’s world, where data breaches, fraud, and cyberattacks are flying all over the streets, SOC 2 is a given for any fintech company that wants to stay relevant. At ForwardAI, we take data security seriously, which is why we are proud to have achieved SOC 2 Type II Compliance Certification in April 2023.