Community financial institutions play a crucial role in supporting local economies, providing personal and business banking solutions tailored to their communities. However, as these institutions increasingly adopt digital banking technologies, they’ve become prime targets for cybercriminals. A recent BNY report highlights cybersecurity as one of the biggest challenges financial institutions will face over the next five years. For 27% of respondents, cybersecurity ranked as the leading long-term concern. Although cyber threats can impact organizations of all sizes, smaller financial institutions—like community banks and credit unions—often face greater risks due to limited IT budgets and resources.
Let’s explore the top cybersecurity threats financial institutions are currently facing, highlighting real-world incidents and trends that illustrate the severity of these threats.
Ransomware: Disrupting Operations and Stealing Data
Ransomware attacks have become a significant threat, often leading to major disruptions and costly recovery efforts. Attackers encrypt a bank’s data and demand a ransom to unlock it, making it difficult for the institution to operate while its systems are down.
Evolve Bank & Trust, a major banking-as-a-service company, confirmed a cyberattack in early 2024 that compromised the personal data of 7.6 million individuals. The breach, linked to a February ransomware attack by the LockBit gang, exposed sensitive information such as names, Social Security numbers, bank account details, and employee data. Additionally, data from Evolve's financial partners, including Affirm, Mercury, and Wise, was compromised. After Evolve discovered the breach and refused to pay the ransom, LockBit published the stolen data on the dark web. Evolve offered affected customers two years of free credit monitoring and identity theft protection.
These types of attacks have risen dramatically in recent years, with average costs now exceeding several million dollars per incident. The ripple effect of a ransomware attack can be devastating—not only halting operations but also leading to long-term damage to a financial institution’s reputation.
Business Email Compromise (BEC): Targeting Leadership and Trust
BEC attacks are another serious threat, where attackers impersonate senior executives or trusted vendors to deceive employees into transferring funds or divulging confidential information. These attacks can be particularly damaging because of the close, often personal, relationships they maintain with clients and partners.
According to the FBI’s Internet Crime Report, Business Email Compromise (BEC) attacks were responsible for an astonishing $2.95 billion in reported losses in 2023, making them the second-costliest form of cybercrime for the year. The rise of BEC attacks is alarming, with losses growing nearly 58% since 2020.
BEC scams are not only common but also highly lucrative for attackers, often leading to financial losses in the hundreds of thousands or even millions. The FBI has identified BEC as one of the most damaging forms of cybercrime, particularly in the financial sector.
Denial of Service (DoS) Attacks: Shutting Down Access
DoS attacks aim to overwhelm a bank’s systems with excessive traffic, rendering its online services inaccessible to legitimate users. While these attacks don’t always result in data breaches, they disrupt operations and can erode customer trust. The frequency of DoS attacks on financial institutions has surged in recent years, costing institutions significant amounts of money in lost productivity and customer dissatisfaction. CybersecurityDive reports that financial services accounted for about 35% of all DoS attacks in 2023, surpassing the gaming industry, which previously held that position. For community financial institutions, the cost of downtime can add up quickly, making even short-term outages highly disruptive.
Third-Party Vendor Attacks: The Hidden Vulnerabilities
Many community banks and credit unions rely on third-party vendors for IT services, payment processing, and other critical operations. Cybercriminals often target these vendors as a way to gain access to financial institutions themselves, exploiting vulnerabilities in the vendor’s systems.
In October 2023, Flagstar Bank experienced its third data breach since 2021, affecting over 800,000 customers. The breach occurred through a third-party service provider, Fiserv, which was compromised as part of the widespread CLOP MOVEit Transfer attacks. These attacks exposed sensitive personal data, including names and Social Security numbers. Flagstar has offered affected customers free identity monitoring for two years as a precaution, despite no confirmed misuse of the compromised data.
Vendor-related attacks have become a top cybersecurity threat to financial institutions with a large percentage of data breaches in the sector being linked to third-party failures. The financial impact of these breaches can be severe, both in terms of fines and lost trust from customers.
Defending Against the Growing Threat of Cyberattacks on Financial Institutions
As cyber threats continue to evolve, community financial institutions face increasing pressure to protect themselves from these attacks. The financial and reputational risks associated with these threats are significant, making it essential for community institutions to ensure robust cybersecurity measures and ongoing staff training.
By staying informed and proactive, financial institutions can defend against these threats and maintain the trust of their customers in a digital world. Sign up here for more tips and strategies for cybersecurity or reach out today to schedule a free consultation.