Navigating the Cybersecurity Landscape of Digital Banking, Article of Debesh Prasad Lohani

Abstract

The digital banking revolution reshapes the landscape of the financial industry, putting effortless transactions and widened access to financial services within consumers' reach. However, just as digital banking has become part of life in the modern economy, it brings in a new layer of complexity through cybersecurity. Increasing cyber-attacks from phishing and malware to sophisticated data breaches-threaten consumer information and financial assets. This abstract is an indication of the urgent need to address the cybersecurity vulnerabilities that are affecting digital banking, and to develop and implement appropriate security measures in order to protect customers, banks, and the overall financial ecosystem from these ever-evolving cyber threats.

Introduction

Digital banking has revolutionized the financial sector, enabled seamless and instantaneous transactions while broadened access to financial services. The digital revolution has reshaped the global financial landscape, with digital banking emerging as a cornerstone of the modern economy. The digital revolution has reshaped the global financial landscape, with digital banking emerging as a cornerstone of the modern economy. This transformation has also presented new challenges, particularly in the realm of cybersecurity (Panja, Fattaleh, Mercado, Robinson, & Meharia, 2013). However, this transformation has also introduced complex cybersecurity challenges. This transformation has also been accompanied by a parallel surge in cyber threats, creating an urgent need for robust cybersecurity frameworks.

Cyber threats in digital banking range from phishing and malware attacks to sophisticated breaches targeting sensitive customer data and financial assets. This transformation has also been accompanied by a parallel surge in cyber threats, creating an urgent need for robust cybersecurity frameworks (Khaleefah & Al-Mashhadi, 2024). As banks increasingly rely on digital technologies to deliver services, they become more susceptible to cyberattacks, which can have devastating consequences for both financial institutions and their customers (Uddin, Ali, & Hassan, 2020). These risks necessitate robust risk management practices and comprehensive mitigation strategies to ensure the security and trustworthiness of digital banking systems. The digital revolution has irrevocably transformed the banking industry, ushering in an era of convenience and efficiency.

There are multifaceted dimensions of cybersecurity risks in digital banking. To overcome from these risks, it is necessary to examine the prevalent risks, explore effective risk management practices, primary cybersecurity risks in digital banking, analyzes effective risk management practices, explores the cybersecurity challenges in digital banking, examines risk management practices, and outlines effective and robust mitigation strategies to safeguard assets and build trust in the digital financial ecosystem, and understanding these key elements, banks can strengthen their defenses and safeguard sensitive customer data (Chavali, 2020).

The Growing Importance of Cybersecurity in Digital Banking

Rise in online banking transactions.

The surge in online banking transactions underscores the growing importance of cybersecurity in digital banking. Nepalese people used some form of digital banking service, with online and mobile banking rapidly becoming the preferred methods of banking for many customers. The COVID-19 pandemic further accelerated this trend, as customers sought contactless options for managing their financial affairs (Subbanna, 2020). With the increasing volume of online transactions, banks are becoming more lucrative targets for cybercriminals. Cyberattacks such as phishing, malware, and ransomware have become more sophisticated, posing significant risks to financial institutions and their customers. Ensuring robust cybersecurity measures is essential to protect sensitive financial data and maintain customer trust in digital banking services.

The increasing sophistication of cyber threats

The sophistication of cyber threats has been evolving at an alarming rate. Cybercriminals are employing advanced techniques to launch targeted attacks to many people who does not have information as well as low digital financial literacy (The World Economic Forum, 2023).

The increasing sophistication of cyber threats Moreover, cybercriminals are continually finding new ways to exploit vulnerabilities in banking systems. For instance, the rise of ransomware attacks has seen financial institutions being targeted with demands for large ransom payments to regain access to encrypted data.

Regulatory and compliance requirements

The increasing importance of cybersecurity in digital banking is also driven by stringent regulatory and compliance requirements. Governments and regulatory bodies worldwide have introduced various data protection laws and standards to safeguard customer data. For example, the General Data Protection Regulation (GDPR) in the European Union, which came into effect in 2018, mandates stringent measures for the protection of personal data. Similarly, the ‘Electronic Transaction Act-2063’ and ‘National Cybersecurity Policy-2080’ of Nepal is also a positive step towards to protect data from cybercriminals. The Payment Card Industry Data Security Standard (PCI DSS) are notable regulations that require financial institutions to implement robust security measures to protect customer information. Compliance with these regulations is not only a legal obligation but also vital for maintaining customer trust and avoiding hefty fines and penalties (Kuzior, et al., 2023).

Cybersecurity Threats in Digital Banking

The interconnected nature of digital banking systems makes them vulnerable to numerous cyber threats. Some of the most prominent threats include:

i) Phishing Attacks

Phishing involves fraudulent attempts to obtain sensitive information, such as usernames, passwords, or credit card details, by posing as a trustworthy entity. In 2023, phishing attacks accounted for over 36% of all data breaches globally, with the financial sector being one of the primary targets (The World Economic Forum, 2023).

ii) Malware and Ransomware

Malware, including ransomware, is designed to disrupt, damage, or gain unauthorized access to systems. Malware and ransomware attacks pose significant threats to digital banking security. Malware, short for malicious software, refers to any software designed to disrupt, damage, or gain unauthorized access to computer systems. Attackers use ransomware to encrypt critical banking data, demanding a ransom for its release (Verma & Shri, 2022).

iii) Threat of Takeover

Cybercriminals use stolen credentials or employ brute-force techniques to gain unauthorized access to user accounts. Account takeover fraud is particularly damaging in digital banking as it often leads to financial loss and reputational damage.

iv) Distributed Denial of Service (DDoS)

Attacks DDoS attacks aim to overwhelm banking servers with excessive traffic, rendering systems inoperable. These attacks disrupt services, compromise customer trust, and can be used as a smokescreen for more targeted breaches (Shaji, 2020).

v) Insider Threats

Employees with access to sensitive systems can intentionally or unintentionally compromise security. Insider threats are often overlooked but account for a significant portion of data breaches in financial institutions.

Risk Management Practices in Digital Banking

Digital risk management in banking has to do with the identification, evaluation, and mitigation of risks emanating from digital technologies and platforms. Mobile banking, online banking, and electronic payments bring about an evolutionary change in the manner in which banking is affected today. These new technologies come with a host of new risks and challenges. To counter these threats, digital banks adopt a range of risk management practices (Kuzior, et al., 2023). Effective risk management is essential for identifying, assessing, and mitigating cybersecurity risks. The following practices form the cornerstone of robust cybersecurity frameworks:

i) Risk Assessment and Vulnerability

Analysis A thorough risk assessment involves identifying assets, understanding potential threats, and evaluating vulnerabilities. Key components include:

• Asset Inventory: Cataloging all digital and physical assets.

• Threat Intelligence: Leveraging real-time data on emerging threats.

• Penetration Testing: Simulating attacks to uncover weaknesses.

Continuous vulnerability scanning helps banks stay ahead of potential risks by addressing flaws before they are exploited.

ii) Implementation of Cybersecurity Frameworks

Cybersecurity frameworks are essential for accessing and mitigating the risks. Frameworks such as the National Institute of Standards and Technology (NIST) Cybersecurity Framework, ISO 27001 and ISO 27002, The Center for Internet Security (CIS) Control Framework, Payment Card Industry Data Security Standard (PCI-DSS), Control Objectives for Information and related Technology (COBIT), Health Information Trust Alliance (HITRUST), Cloud Maturity Model Certification), Essential 8, Cyber Essentials are some of the major and popular examples of cybersecurity frameworks (Azmi, Tibben, & Win, 2018). These frameworks generally provide a structured approach to managing risks. These frameworks guide banks in:

• Identifying critical systems and sensitive data.

• Protecting through access controls and encryption.

• Detecting anomalies using intrusion detection systems (IDS).

• Responding to incidents with well-defined protocols.

• Recovering from disruptions swiftly.

iii) Adherence to Regulatory Compliance

"Adherence to regulatory compliance and risk management" means to conscientiously adhere to all the relevant laws, regulations, and industry standards, and to recognize, assess, and mitigate risks related to non-conformity. It means a firm operates within the legal envelope and is also proactive in finding solutions for any potential issues arising from regulatory violations. Regulatory bodies worldwide enforce cybersecurity standards to protect the financial system. Common examples of regulatory risk include (Verma & Shri, 2022):

• Financial regulations: Changes in banking laws, securities regulations, or tax laws can affect how companies manage their finances, report earnings, and conduct transactions.

• Environmental regulations: New or stricter environmental laws may require companies to invest in cleaner technologies or change their operational processes to reduce pollution and waste, impacting their costs and operations. EIA must be done for some of the major constructions or manufactures in Nepal.

• Health and safety regulations: Banks often face updates in safety standards that require new compliance measures, potentially leading to increased operational costs. The ‘Labor Act-2074’ of Nepal, also envisioned that any organization (including banks) should have occupational safety and health Policy in place to protect employee’s health and their safety.

• Data protection and privacy laws: With increasing concerns over data security, companies must comply with the law of land like the General Data Protection Regulation (GDPR) in Europe, ‘Electronic Transaction Act-2063’ and ‘National Cybersecurity Policy-2080’ in Nepal, and similar laws mandating how consumer data is handled and protected.

• Employment laws: Changes in labor laws, including minimum wage, working hours, and benefits, can influence staffing and operational costs. With regulatory compliance, any bank will be able to minimize the respective risks while still retaining the necessary qualifications (Nepal Rastra Bank, 2012). Compliant companies-and their partners-can operate at peak efficiency, reducing costs while protecting customer data and enhancing the brand experience. Compliance with these are not only enhances security but also fosters customer trust.

iv) Investment in Security Technologies

Security investment decisions are the processes that should be implemented for the bank’s choices on how resources are to be utilized in security. This encompasses strategic alignment, regulatory compliance, and cost benefit analysis that look at mitigating potential risks that may arise because of a security program. Investing in security technologies can be a good long-term investment opportunity. It is important that cybersecurity investment be considered crucial to any businesses including banks for the protection of their assets, reputation, and operations. Due to the continuous rise in cyber threats and their refinement by attackers, strong cybersecurity measures are required to prevent breaches and ensure regulatory compliance for any banks. With the growing pressure for BFIs to secure their digital assets, demand for cybersecurity services is expected to remain strong (Uddin, Ali, & Hassan, 2020). It leads to very stable revenues and huge opportunities for further growth, hence making such services very attractive investments for client portfolios. Banks are now increasingly deploying cutting-edge technologies such as (Kuzior, et al., 2023):

Artificial Intelligence (AI):

Used for real-time fraud detection and behavioral analysis. AI elevates cybersecurity through automated threat detection and response, enhancing their prevention and the identification of threat actors in real time (Google Cloud Security, 2025). These tools help in many ways, such as preventing malware attacks by the detection and isolation of malicious software, or brute force attacks through recognition and blocking of repeated login attempts.

• Blockchain: Blockchain security enhances transactional security through immutable ledgers. It refers to the risk management framework or security system of a blockchain network, designed to protect it from cyber threats. Blockchain security utilizes a combination of cybersecurity best practices, established frameworks, and technical safeguards to deter fraud and cyberattacks. As a type of Distributed Ledger Technology (DLT), blockchain fosters trust and reliability within its ecosystem. It functions as a decentralized ledger that is copied and shared across an entire network of computers, where each node or member can record, access, and securely share encrypted transactional data.

• Biometric Authentication: Biometric security systems are advanced technologies that authenticate individuals by analyzing their unique physical traits. Biometric authentication refers to the process of verifying a user's identity using unique biological characteristics, including fingerprints, voice patterns, and features of the retina or face. It involves storing information about these unique traits to validate a user's identity during subsequent access to the account.

v) Incident Response Planning

The Incident Response Plan is a documented set of guidelines that define a bank’s response to data breaches, leaks, cyber-attacks, and security incidents. It includes detailed instructions on how to handle specific threats to minimize damage, reduce recovery time, and mitigate cybersecurity risks. Incident response procedures emphasize preparation for security breaches and the steps required for effective recovery. Without a structured incident response plan, banks may fail at detecting attacks or have insufficient measures for containment, remediation, and future incident prevention. An incident response plan ensures a structured approach to handling security breaches. Key steps include (Duncan, 2022):

• Preparation

Effective incident response begins with a well-defined policy that outlines key priorities, assigns leadership roles, and keeps the plan concise for executive approval. The next step is to assemble a multidisciplinary incident response team, comprising representatives from IT, operations, legal, HR, audit, risk management, compliance, and finance. It is essential to ensure that all team members understand their roles and the critical importance of cybersecurity preparedness. Regular reviews of policies and routine training sessions are necessary to maintain readiness and enhance the organization’s ability to respond effectively to security incidents.

• Detection and Analysis

Implement security safeguards to quickly identify vulnerabilities and potential threats. Utilize tools like attack surface analytics, continuous monitoring, firewalls, endpoint detection, SOC, and SIEM solutions to detect breaches and prioritize risks.

• Containment, Eradication, and Recovery

Mitigate incidents by identifying affected systems, isolating compromised devices, addressing root causes, and restoring operations. Prioritize response based on data criticality, incident severity, and business continuity needs. Maintain detailed documentation of actions taken and evidence collected to support future incident response planning.

• Post-Incident Review

Conduct a post-mortem analysis to evaluate response effectiveness, identify gaps, and implement improvements. Create a collaborative, blameless environment for discussion with top managements. The incident response leader should report:

Ø Incident timeline

Ø Key response metrics (e.g., Mean Time to Detect and Repair)

Ø Business and operational impact

Ø Containment and remediation measures For banks subject to regulatory reporting ensure compliance with required incident disclosures.

• Testing and Drills

Regularly test the incident response plan through simulations and drills. Rotate scenarios monthly to enhance preparedness.

Conclusion

Cybersecurity in digital banking is no longer merely an operational requirement but a strategic imperative. By adopting comprehensive risk management practices and robust mitigation strategies, banks can strengthen their defenses against cyber threats. As the financial sector evolves, a collaborative and proactive approach is essential to safeguard customer trust, ensure regulatory compliance, and protect the financial ecosystem from the ever-present dangers of the digital age (Google Cloud Security, 2025). The rapid expansion of digital banking highlights the critical need for robust cybersecurity measures. Financial institutions can effectively mitigate cyber threats by implementing comprehensive risk management frameworks and leveraging advanced technologies. Despite the ongoing challenges, a proactive, collaborative effort involving stakeholders, customers, and regulators is key to ensuring the security and reliability of digital banking systems. In an era where cyber threats are ubiquitous, a commitment to strengthening cybersecurity is not just a necessity but a foundational pillar for sustainable growth and resilience in the digital financial sector.

References

Azmi, R., Tibben, W., & Win, K. T. (2018, September 11). Review of cybersecurity frameworks: context and shared concepts. Journal of Cyber Policy, 3(2), pp. 258–283. doi:https://doi. org/10.1080/23738871.2018.1520271

Chavali, K. (2020). How to keep your digital banking safe from rising threats. EC-Council Cyber. Duncan, C. (2022, September 8). Cyber Security in Banking. Retrieved from DeskAlerts: https://www.alert-software. com/blog/cybersecurity-in-banking

Google Cloud Security. (2025). Cybersecurity Forecast 2025. Google Cloud Security.

Khaleefah, A. D., & Al-Mashhadi, H. M. (2024, January 30). Methodologies, Requirements, and Challenges of Cybersecurity Frameworks: A Review. Iraqi Journal of Science,, 65(1), pp. 468-486. doi:https://doi. org/10.24996/ijs.2024.65.1.38

Kuzior, A., Yarovenko, H., Brożek, P., Sidelnyk, N., Boyko, A., & Vasilyeva, T. (2023, October 27). Company Cybersecurity System: Assessment, Risks and Expectations. Production Engineering Archives, 29(4). doi:https://doi. org/10.30657/pea.2023.29.43

Nepal Rastra Bank. (2012). Nepal Rastra Bank Information Technology Guidelines. Kathmandu: Nepal Rastra Bank.

Panja, B., Fattaleh, D., Mercado, M., Robinson, & Meharia, A. P. (2013). Cybersecurity in banking and financial sector: Security analysis of a mobile banking application. International Conference on Collaboration Technologies and Systems (CTS), (pp. 397-403). San Diego, CA.

Shaji, A. M. (2020, June 17). Cybersecurity in Digital Banking: Threats, Challenges and Solution. Retrieved from Enterslice: https://enterslice.com/learning/cybersecurityin-digital-banking-threats-challenges-and-solution/

Subbanna, S. (2020, December 31). Digital Banking Will Be The Future Of Banking Post Corona Pandemic. Retrieved from Outlook: https://www.outlookindia. com/website/story/digital-banking-a-game-changer-fortraditional-banking-system-in-india/360406

The World Economic Forum. (2023). Global Cybersecurity Outlook 2023. Geneva: The World Economic Forum.

Uddin, M. H., Ali, M. H., & Hassan, M. K. (2020). Cybersecurity hazards and financial system vulnerability: a synthesis of literature. Risk Management, 239-309. doi:https://doi. org/10.1057/s41283-020-00063-2

Verma, A., & Shri, C. ( 2022, February 17). Cyber Security: A Review of Cyber Crimes, Security Challenges and Measures to Control. The Journal of Business Perspective. doi:https://doi.org/10.1177/09722629221074760

(Debesh Prasad Lohani is the Deputy Chief Executive Officer of Rastriya Banijya Bank Ltd. This article is from Rastriya Banijya Bank's 60th Anniversary Special Publication, Upahar 2081.)

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