As Financial Institutions Face Heightened Digital Security Risks, Black-Owned Banks Fight Back

As financial institutions have seen a spike in pandemic-related fraud and cybercrime, minority-owned banks face an additional challenge: they are often the only access point for minority communities to participate in the economy. .

According to aerospace and defense firm BAE Systems’ COVID Crime Index, the COVID-19 pandemic has created a boon for cybercrime opportunities, particularly among banks and credit unions. Three-quarters of financial institutions reported attacks, resulting in billions of dollars in losses.

A September report from cybersecurity firm Trend Micro also found that ransomware is disproportionately targeting the banking industry, with attacks up 1,318% in the first half of 2021 from a year earlier.

Black Banking (Adobe Stock photo)

In the United States, minority-owned depository institutions, or MDIs, take an uncompromising approach to their digital security because of their unique role in the black community.

“We provide basic financial services, access to capital and credit in neighborhoods that would otherwise often be banking deserts, and where the only financial services available to people are very expensive predatory services,” said Robert James IIChairman of the National Bankers Association, a leading trade association for MDIs.

The number of black-owned banks has fallen from more than 50 in 1976 to just 18 today, according to BankBlack USA.

Teri Williamsthe president and chief operating officer of OneUnited Bank, the nation’s largest black-owned bank, said she has monitored three top digital threats over the past six months.

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Two are the bread and butter of cybercrime: phishing (fraudulent emails intended to trick users into clicking on a link or providing personal information) and firewall breaches.

However, the third risk Williams has prioritized is allaying customer fears about digital or online banking, particularly among older people. Although OneUnited has six physical branches across the country, it has also been operating online since 2005, positioning itself as an early leader in the emerging fintech market.

“One of the things we’ve seen with the pandemic is that our customer base has increased dramatically because people couldn’t go out and get to the bank. And so they really recognized that they needed to use digital services, not just for banking, but for a whole host of things. So it was almost by force that the older generation got comfortable,” Williams said.

(Photo: Adobe Stock)

According to the Brookings Institution, Black-owned businesses were 12 percentage points more likely to use fintech lenders for Paycheck Protection Program loans.

“During the pandemic, most of our institutions have been able to step up and provide access to capital, provide access to credit, especially when you look at the PPP lending process. It was a case where our institutions were able to provide these services, in many cases, to minority-owned businesses that were banked at larger institutions but could not be serviced by those banks,” James said. of the National Bankers Association.

In November, James testified before a subcommittee of the House Financial Services Committee investigating cyber threats within the financial system. James explained that like community banks, the technology infrastructure of most MDIs relies on “core processing services,” which handle all transaction records, debits and credits. However, because MDIs are among the smallest customers of these core processing companies, they are often given lower priority when it comes to receiving adaptive technology resources, he said.

“Even if they have better technology, these companies don’t necessarily offer it to you as a solution to make things easier or safer for your customers. We are very vulnerable to the whims of these huge corporations,” James said.

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As a result, members of banks affiliated with the National Bankers Association have formed a committee to develop new technology solutions and increase their bargaining power with major processors. James said one of the main initiatives of the committee was to speed up the account opening process using digital methods of identity verification.

For Williams and James, because of the crucial role of MDIs within black communities, black-owned banks have an added incentive to be hyper-vigilant about cybersecurity.

“Since George Floyd‘s murder, we had the opportunity to get more capital in our banks from big banks, corporate America and even the government” to show our support for racial justice, James said.

“Because of this capital injection, all of our banks are really focused on strengthening their overall technology, and that includes cybersecurity,” he said.

Michael Korsh is a graduate student in the Medill Investigative Lab specialization at the Medill School of Journalism at Northwestern University, where he also received his undergraduate degree. He has interned for Kiplinger’s Personal Finance magazine, Injustice Watch, the Medill Investigative Lab and Moment Magazine. You can follow him on social media @michael_korsh.

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Sylvia B. Polson