India’s demonetization opens doors for fintech, but cyber attacks threaten

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India is still reeling from the effects of the demonetization policy that was announced on November 8, 2016. Intended to curb black money and corruption, the government moved to demonetize 500 and 1,000 rupee notes and replaced these with new 500 and 2,000 notes.

With 95 percent of all transactions still dependent on bank notes, the replacement of the demonetized notes was slow to meet demands. The old ones affected 86 percent of all currency in circulation at the time.

The tech boom helped India to grow as Asia’s third largest economy, but the cash crunch is affecting the tech sector. Many electronic services like Uber and Amazon India are cash-dependent.

The cash crunch also gives financial technology or “fintech” solutions, such as cashless payment platforms, an opportunity to help ease the crisis. But with these new technologies come threats. Cyber attacks have taken center stage in tech discussions last year where it saw records in the size and scale of distributed denial-of-service (DDoS) attacks.

Large technology firms like Yahoo and Dropbox also revealed massive data breaches. The recent incident concerning 3.2 million hacked Indian debit cards only showed that India has yet to shore up its cyber security capabilities to safeguard people’s money.

Opportunities in fintech despite ecommerce hit

Ecommerce was initially projected as a major well of opportunity in India as investments continued to pour in. Large ecommerce firms like Flipkart and Amazon went on spending sprees to beef up their infrastructure and market presence in India. Amazon spent heavily in the country believing that it is the next biggest market after the US. However, this investment has yet to pay off, with the ecommerce giant reporting double losses for fiscal year 2016 compared to 2015.

The cash crunch is expected to put ecommerce players into a bigger bind, especially with cash-on-delivery sales expected to decrease due to cash shortage. The demonetization backlash, however, presents a unique opportunity for cashless payment processors and may well be a savior of Indian ecommerce.

Mobile wallet startup Paytm recorded 173 million users in December last year. Rival Mobikwik also reported growth in usage as consumers find ways to transact with merchants. Interestingly, the government also entered the digital payment scene with the Bharat Interface for Money (BHIM) payment processing app that uses bank accounts to enable transactions.

Fintech is not immune to cyber crime

Unfortunately, this shift is also expected to draw the attention of cyber criminals. While the previously mentioned debit card hacking attack used skimming devices on ATM kiosks to gather and compromise card information, this does not mean that internet and mobile-app-based digital payments are safe from attacks.

Coinsecure reported DDoS attacks on its service in December. While cryptocurrencies offer a convenient means of payment for many online transactions, getting hit by a DDoS attack means users are unable to access their digital money.

Digital security firm Incapsula projects that DDoS attacks will get worse in the future. The firm recently noted a new “Leet” DDoS botnet that rivals the notorious Mirai malware in scale of DDoS attack capacity. Mirai took down the Dyn DNS service, which affected popular sites like Twitter and Spotify late last year. For enterprises, such attacks can cost up to US$40,000 per hour. Ponemon estimates each security breach to cost US$4 million.

Security is everyone’s responsibility

All businesses with a digital presence should keep security as part of their agenda. Vigilance is definitely a major factor as one does not have to look far for sources of attacks. Indian nationals had been reported to commit such crimes domestically. Unfriendly neighboring states may also be behind such threats.

India’s cyber security agency Cert-in has also set its sights on improving its measures to inform the public of such threats. The government has also looked for outside help with the IT Minister appealing to private firms like Google to improve cyber security.