After years of supply chain disruptions and economic uncertainty, wholesale and inventory finance is finally on the rise, fueled by significant investments in technology that enable businesses to scale like never before. However, with digital transformation sweeping across the industry, cyber risk is also on the rise. At the current rate of growth, McKinsey & Company predicts that damage from cyberattacks will amount to about $10.5 trillion annually by 2025—a 300% increase from 2015. Surprisingly, only 8% of companies assess cyber risks monthly, according to a study by ISACA.
To stay ahead, the asset finance sector needs to embrace and strategically implement advanced technologies. Integrating advanced cyber defense capabilities like artificial intelligence (AI), the Internet of Things (IoT), and machine learning (ML) isn’t just optional—it’s essential.
This article explores the growing cyber threats, the game-changing role of advanced tech, real-world success stories, and how software providers can lead the charge to secure the future of asset finance.
Cyber threats in asset finance
Cyber threats in asset finance usually come in the form of malware, phishing attacks, data breaches, or even insider threats (including operational risk). Outdated systems, poor security measures and controls, and a lack of training generally lead to the exploitation of vulnerabilities within a company. A top target for cyber ransomware, as identified in an industry report, was successfully attacking unpatched vulnerabilities, with 56% of older vulnerabilities still actively being exploited by threat actors.
The most targeted sector is still financial institutions, accounting for 23.5% of phishing attacks. During the second quarter of 2023, 1.3 million phishing attacks were recorded, the third-highest quarterly total ever recorded in the Phishing Activity Trends Report.
The consequences are devastating financial losses, with the global average cost of a data breach standing at $4.45 million in 2023, as reported by IBM. This does not include reputational damage, legal action due to potential non-compliance, or operational disruptions that interrupt critical business activity. Understanding and addressing these threats is crucial for safeguarding the asset finance industry in an era where digital transformation is inevitable.
Unsurprisingly, the Zscaler ThreatLabs 2023 Phishing Report predicts that AI-driven phishing attacks will continue to increase in 2024, with the finance sector having seen a 273% rise in phishing attacks in 2022. Additionally, the average amount of ransomware payments significantly increased from $812,000 in 2022 to $1.5 million in 2023. Attackers are using the latest AI capabilities to create new, sophisticated phishing campaigns. Phishing-as-a-service offerings have matured through customized templates and advanced social engineering capabilities. Attackers largely impersonate popular financial institutions, thus making financial institutions the most targeted brand category in phishing attacks. Meanwhile, 60% of cybersecurity leaders responding to questions posed in Cisco’s Cybersecurity Readiness Index said they had a cybersecurity incident in the past 12 months, and 41% of those affected said it cost their organizations at least $500,000.
Digital transformation
Traditional methods
Historically, the asset finance industry has relied on firewalls, antivirus software, encryption, IDS/IPS, MFA, security audits, access control, employee training, data backups, patch management, and secure software development to protect against cyber threats. However, in 2024, these measures alone are insufficient due to increasingly sophisticated attacks like zero-day exploits, advanced evasion techniques, and insider threats. Modern cybersecurity needs adaptive, proactive strategies and advanced technologies to address these evolving risks effectively. It is typical for companies to outsource these strategies to partners who specialize in these tactics or utilize new tech infrastructure that has most of these defenses baked in.
The shift to advanced technologies
A report by the World Economic Forum states that 95% of cybersecurity breaches are caused by human error. The need for efficiency, cost-cutting, growing security awareness, and reducing human errors are driving the digital transformation in asset finance management. Financial institutions not adopting advanced digital technologies are seeing declines in revenue growth. McKinsey estimates that failing to leverage generative AI could lead to missed cost reductions of $200 billion to $300 billion, affecting profitability and market position. New solutions for many long-standing challenges are at the forefront of this, powered by advanced technologies such as AI, ML, IoT, and data analytics. Digital transformation is evidently a top agenda, with 68% of organizations prioritizing digital transformation and 53% ramping up cloud capabilities, according to Flexera.
Data analytics and AI
Data analytics and artificial intelligence are driving a paradigm shift in cybersecurity and digital transformation across the asset finance industry. They benefit the sector by improving risk assessment, fraud detection, and operational efficiency while providing valuable insights for decision-making. According to the IBM Cost of a Data Breach Report 2023, organizations that used AI and automation achieved a 34% time-saving in cyber risk identification and isolation. The report noted that organizations with extensive use of security AI and automation demonstrated the highest cost savings, representing a 39.3% difference.
Machine learning
Firms using ML have consistently reported a significant reduction in surveillance time and related risk identification improvements. For instance, McKinsey & Company noted a leading financial institution that applied ML to transaction monitoring raised its quality of suspicious activity identification by up to 40% and increased productivity by 30%. This leads to substantial cost savings, competitive advantage, and better regulatory compliance. ML enables faster and more accurate transaction monitoring, allowing firms to allocate resources more effectively and handle more operations without increasing their workforce. Overall, ML integration results in stronger, more agile, and profitable business operations.
Furthermore, ML models can process huge volumes more efficiently than conventional methods, allowing for anomaly detection and potential risk at a higher speed and accuracy. This ability will benefit domains like anti-money laundering, where sophisticated ML algorithms can adapt to new trends and improve over time to offer more robust and timely risk identification.
IoT and asset monitoring
IoT devices monitor assets in real-time to immediately detect abnormal or unauthorized activities. Implementing IoT-based predictive maintenance can reduce the costs of maintaining factory equipment by monitoring equipment performance and predicting issues before they become major problems. This approach helps avoid unexpected breakdowns and minimizes downtime, leading to more efficient maintenance scheduling and cost savings. IoT sensors track and report anomalies in asset usage, thus helping block theft or unauthorized access. The information collected from the connected devices in an IoT setting can be used to develop better risk management strategies. By analyzing this data, a financial institution can determine the patterns of occurrence of a particular event that may lead to a security threat and hence measures before the time. Automated systems can handle access controls, monitor environmental conditions, and enforce security policies to reduce the potential for human error.
How the SBS and Vero partnership is transforming cybersecurity
The asset finance industry is working hard to innovate responsibly in the face of increasing cyber threats. Traditional security measures and controls that once were the backbone for defense no longer counter sophisticated attacks like those we face today. Adopting advanced cybersecurity technologies helps the asset finance sector repel cyber threats, meet regulatory requirements, and drive responsible innovation.
SBS and Vero are helping asset finance businesses of all sizes by partnering with them and guiding their digital transformation. Our combined end-to-end operating system supports every function across floor plan financing, helping to modernize operations and reduce exposure to various risk domains, including operational and cyber. With modules that support everything from underwriting to collections, originations, audits, titles, and real-time risk monitoring tools, SFP Wholesale with Vero helps consolidate systems and support all essential processes on one single platform.
“Partnering with SBS has helped our company significantly by providing a robust, trustworthy loan management system upon which we can build out more complex technology products that our clients interact with,” says John Mizzi, CEO and founder of Vero Technologies. “Building a secure platform is something our team constantly thinks about, and we are excited to help businesses grow responsibly,” he adds.
Click here to learn more about the SFP Wholesale with Vero solution.
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