Cyber crimes involve illegal activities that are carried out through computers and information technology. The threat of cyber crimes affects businesses on a global scale and causes a loss of millions of dollars. Financial industries have made cyber threats a priority and are taking systematic measures to curb frauds. Cyber criminals target financial firms due to huge monetary gains and lack of fear of detection. According to Finance Industry Drill Down reports, hackers targeted financial sector 300 percent more than other sectors. Firms have taken streamlined measures to improve efficiency, speed of operations and security systems. However, cyber criminals come up with innovative tactics to hack into financial systems. Advances in internet and communication technology enable criminals to carry out illegal activities.
Cyber criminals are constantly evolving and coming up with new, complex tactics to acquire access to data. The financial sector is constantly threatened by new entrants; thus, firms are turning to digital strategies to improve customer services. Industries are looking for innovative ways to enhance communication, such as mobile banking and apps – that can be used to complete transactions. The concern arises that companies continue to develop new channels to provide quality service; yet criminals can manipulate digital channels and acquire access to valuable data.
Intellectual Property Theft
In the US, the costs of cyber crime amount to $100 billion every year, which is nearly 1 percent of GDP. Corporations or banks lose confidential information that is misused against the company and to draw in illicit financial gains. Criminals can hack into data, steal company’s product plans and results of research and customer lists. The corporation may have back up for data, but lack sole ownership over information.
In order to determine the value of intellectual property, firms could measure the market value for their services, how much income their services generate from sales and forecasted returns in the future. It is still difficult to obtain the accurate value of intellectual property because costs of research and development could differ from costs of loss of information. Furthermore, when information is extracted, criminals may lack the resources or capital, skills and capacity to manufacture products. In the US, intellectual property is stolen by hackers and provided to competitors. High-tech products require skills and sophisticated processes to manage operations.
Damage to reputation
Companies lose value for their products and services when cyber crimes are known to the public, even if they were not involved in the criminal activity. When stock prices fall, the losses could range between 1 – 5 percent. Shareholders may be able to determine how criminals are operating and avoid investing in corporations that have a history of being affected by or being engaged in cyber crimes. However, there is a lack of understanding about what was stolen, by whom and for whose benefit. Stock prices remain low if stakeholders get to know that the industry has been affected by a cyber crime. Companies would be unable to recover stock prices if investors find out about the crimes.
High costs of security
Since criminals continue to come up with complex techniques to steal intellectual property, and companies need to come up with systematic solutions to counteract crimes, the costs of securing information would increase. According to a report, firms need to invest at least 7 percent of their information technology budget to cyber security. The global expenditure for cyber security software is around $60 billion and keeps growing at 8 percent every year. The activities of criminals and impose disproportionate costs for society and economic growth.
Companies would always need to spend on cyber security. The expenditure raises inefficiencies with respect to economic growth because all that investment could have been made on development projects and capital formation instead. Companies in the US spend $1 billion in 2012 to combat breach to security, access to confidential information and risk of social media attacks and cyber espionage. The companies are also faced with costs of cleaning up after malicious activities. A survey showed the companies spent $9 million to clean up after unauthorized access to their information. In fact, the costs of clearing up can go much higher. Companies also have to deal with increased insurance costs to control liabilities from cyber attacks.
The costs of cyber security and clearing charges after cyber attacks increase inefficiency of the economy because investments could have been made in capital expansion or improvement of goods and services. Financial industries incur high opportunity costs – foregone opportunities or lost benefits that could have been utilized to expand growth opportunities. Due to high cost of security measures, firms may lose out sales, growth and productivity.
Customers lose confidence in financial services due to looming threats of breach of security, personal information and fraud. Loss of public trust of financial services affects markets and public welfare. A survey conducted by International Telecommunication Union revealed that 40 percent of 400 respondents avoided internet transactions due to fear of illicit activities and security concerns. However, internet usage continues to expand globally. If there had been no fears regarding fraud and security break, internet usage would expand faster. The opportunity costs include investment on internet services that could have been utilized in the best interest of public. Internet would expand at a faster rate if was safe and secure.
Consumers are not prevented from using the internet; however, the threat of cyber crimes changing their behaviors regarding how they use the Internet. Consumers then use Internet for low value activities rather than for commercial purposes.
When financial services are affected, the whole country’s productivity levels, capacity and rate of economic growth are affected. The nation’s capacity for innovation takes a toll. When hackers get access to intellectual property, the wealth, skills, knowledge and information of the affected country are transferred to the recipient country that abuses data to provide goods at lower costs. It also reduces incentives for the recipient country to innovate and expand growth. The country that operates on stolen intellectual property will never learn to create and innovate. Cyber espionage also affects the global capacity for innovation and lowers returns for innovators and lowers capacity for innovation, which in turn reduces resources. Therefore, cyber crimes harm financial sectors all over the globe.