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The week in fintech: Analysts expect cyberattacks to continue in '18

This weekly recap features updates on bank technology, payments, online lending and other news in the financial technology space. Send tips, ideas and chatter to rachel.stone@spglobal.com. For other recent fintech news, click here.

After a year of high-profile cyberattacks and data breaches, analysts expect to see more of the same in 2018 as hackers get smarter and find more ways to hide malicious software.

In recent years, major cybersecurity breaches have been revealed at Equifax Inc., the Securities Exchange Commission, Uber Technologies Inc. and Yahoo! Inc., now known as Altaba Inc., among others. Multiple industries have called on Congress to enact a national law to expedite the reporting of data breaches and require data breach notifications for all industries that handle consumer data.

The Office of Financial Research in its 2017 Financial Stability Report found that the financial system "remains vulnerable" to cyberattacks, which it said reflects the industry's "operation dependence" on information technology. Cybersecurity incidents ranked near the top as one of the office's key threats to financial stability within the U.S.

From the perspective of financial institutions, Aite Group analyst Shirley Inscoe said account takeover fraud has been the most challenging issue of 2017. It has become very difficult for financial institutions to depend on traditional authentication methods because of the recent data breaches and phishing attacks, she said in an email.

Looking ahead to 2018, Inscoe expects many financial institutions to focus on authentication. In particular, they are likely to look at expanding their use of one-time passwords to ensure the legitimate customer is attempting to perform a digital transaction. Device identification will play an increasingly large role in this process, Inscoe added.

In a nationwide survey of U.S. business executives, Hartford Steam Boiler Inspection & Insurance Co. found that almost one-third of U.S. businesses experienced a data breach in the previous year. Hartford Steam, part of Munich Re, said that eight in 10 spent at least $5,000 to respond to a breach.

Aite's Jay Sarzen warned of the rise of ransomware attacks, a cyberattack where a hacker threatens to publish a victim's data or perpetually block access to it until a ransom is paid.

"Ransomware is definitely taking hold of the imagination of the cybercriminal," the analyst said in an interview.

However, Sarzen believes most attacks are still "your bread-and-butter data breach" for now, adding that an overwhelming amount of breaches still stem from something as simple as an employee opening up a phishing email. Although it may sound rudimentary, Sarzen stressed that educating employees about basic cyber etiquette is a crucial step in preventing a breach.

Sarzen, who focuses on insurance, said that many companies do not have employees with the qualifications to determine the effectiveness of their own cyber defenses. He suggested it might be a good move for some to bring in a firm that focuses on cybersecurity and understands the nature of these threats.

Cyberrisks are also "very difficult" for carriers to underwrite, as there is a lack of historical data on which to model pricing, Sarzen said. Insurers have yet to truly model the "Armageddon disaster," he added.

In other fintech news this week, JPMorgan Chase & Co. Chairman, President and CEO Jamie Dimon might be softening his tone on cryptocurrencies. "Look, everyone has a personal opinion about bitcoin. I remain highly skeptical of it," Dimon told CNBC. "But as I've said previously, I'm open-minded to uses of cryptocurrencies if properly controlled and regulated."

In October, Dimon had said people who are "stupid enough to buy" bitcoin will pay the price one day. Before that, he called the cryptocurrency a "fraud."

The price of bitcoin continues to be volatile, sitting at $15,240.58 as of 2:07 p.m. ET on Dec. 8, after moving over $17,000 earlier that morning.

LendingClub Corp. put out weaker-than-anticipated guidance at its investor day this week. Guggenheim analyst Jeffrey Cantwell decreased his price target for the digital lender to $4 from $6 in a Dec. 8 note, though he still has a "buy" rating on the stock. LendingClub management stressed its continued focus on expanding its investor base into 2018, Cantwell said.

Credible Labs Inc., a digital lending startup, raised $50 million in an initial public offering on the Australian Securities Exchange, Bloomberg News reported from a company statement Dec. 7.

In the payments space, Discover Financial Services announced that it enabled payments for Apple Inc.'s newly launched Apple Pay Cash card, a virtual debit card that lives within the Apple Wallet app. Credit Suisse analyst Paul Condra does not see this as a significant threat to PayPal Holdings Inc.'s Venmo, he said in a Dec. 8 note.

From Dec. 1 to Dec. 7, the SNL U.S. Financial Technology Index rose 0.19%.

A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.