6 Jul 2023 · Software Engineering

    The Impact of Cloud Computing on Risk Management and Fraud Prevention

    8 min read

    Cloud computing is the great equalizer of the modern workplace. With it, even the smallest of businesses can punch way above its weight. However, due to their smaller IT and cybersecurity teams, they’re also more at risk, which raises some important issues. 

    • Its risk assessment and fraud prevention capacities are off the charts, but how significant is this
    • Perhaps even more importantly, are there any downsides
    • Compared to the opportunities, do these downsides give a net positive or negative?  

    Stick around, and we’ll try to answer how even the smallest of enterprises can handle these issues with modern cloud computing capacities and threat analysis methods.

    Source: Unsplash

    Better agility and scalability

    Cloud agility refers to issues like monitoring, analysis, and security. As such, it’s tightly intertwined with risk management and fraud prevention. 

    The biggest problem with the toolset of a modern business is that it’s constantly evolving. This means that you’re currently using a tool that you may replace or upgrade in the future. It also means that you might introduce new tools to complement your work process.

    While all of this sounds great, the problem is that you change a delicate ecosystem with everything new you introduce. A single unoptimized or untrustworthy tool can compromise a dozen other great tools at your disposal. 

    Cloud agility provides you with greater flexibility and automated allocation of resources. This way, your team can focus on processes that require human input. Since the majority of these tasks are mostly technical, automation lowers the likelihood of error. 

    Regarding scalability, cloud computing allows businesses to buy more computing power without dealing with hardware. You don’t have to make more space for the hardware. You don’t have to install it. You don’t even have to wait for it to get delivered. You just pay for it and get to use it (usually) in minutes.

    Scalability is especially important when growing a small team

    Enhanced overall security

    One of the most marketable promises of cloud computing is transparency regarding your cloud-based assets. This means that you get 24/7 monitoring of everything that’s going on. Even when you’re not actively tending to your assets, you can rest assured that they are under a watchful eye.

    The most significant advantage of cloud computing security is the advanced protection against DDoS attacks. This is a huge problem since it is estimated that an hour of a DDoS attack can cost an organization as much as $40,000

    The biggest addition to your risk management efforts comes from advanced threat detection. This usually includes tools and methods like:

    • Endpoint scanning: Here, the system will check the integrity of each IP device before allowing it to connect to your network. So, if a device from this IP has made previous offenses, their activity would raise the alarm.
    • Global threat intelligence: The system will check the integrity of the IP device before allowing it to connect to your network. The most challenging thing they do is provide contextual metrics, which help you understand the threat level based on the user’s location.

    Most importantly, great cloud security helps you fulfill regulatory standards and compliance needs. As a business, application security will be one of the things most closely monitored by regulatory bodies. Cloud computing can help make this a lot easier. 

    Source: Unsplash

    Hackers aren’t the only ones committing fraud

    Hackers and malicious third parties are not responsible for all frauds. Sometimes, this fraudulent behavior comes from people you’re doing business with. They’re not doing it under a false identity; no hackers are involved. Either your buyer or the business you’re buying from is defrauding you.

    So, what is friendly fraud

    Simply put, it’s fraud committed by one of the parties in a transaction, and it often looks like a mistake. A client makes an order for an item and later files a claim that they didn’t make an order or that someone stole their credit card. It’s an opportunist behavior that’s hard to prove.

    Still, not all friendly frauds are malicious. A customer can genuinely forget about making an order and request a refund claiming that they didn’t make it. 

    It’s not always the customer’s fault either. Sometimes, a merchant may make a mistake or miss a delivery (when it’s time-sensitive). 

    The most common form of friendly fraud comes in the form of policy abuse fraud. If a merchant has a return policy that’s too forgiving, a customer might test out a product or use it once before returning it. 

    The simplest way to handle friendly fraud is to request confirmation during the purchasing process. This can be in the form of a CVV number, typing in a code they received via an SMS, or asking for a confirmation email. Once they confirm, the customer can no longer claim it wasn’t them. Likewise, if a merchant doesn’t receive a confirmation for a purchase, they can discontinue the transaction.

    From the merchant’s standpoint, excellent technical safety (a common trait of the cloud computing process) will reduce the risk of errors. Moreover, with the cloud, there’s elaborate record-keeping in place. This means it’s easier to prove who made an “error.”

    Challenges of cloud computing 

    Of course, cloud computing is not without its downsides, some of which are pretty serious.

    Data privacy

    One of the biggest misconceptions is that consumers’ private data is, somehow, less safe because it’s in the cloud. There are several reasons why this argument is dubious.

    First of all, less safe compared to… what exactly? Consumer data has always existed, and it holds up compared to paper documents. About 7.5% of all paper documents end up lost. Some of which might even end up in the wrong hands. With cloud computing, the numbers are nowhere near this.

    The biggest concern regarding data confidentiality is that customer data shouldn’t be available to unauthorized personnel. Still, in cloud computing, you have a high level of access customization to help you handle this issue. 

    Regarding data loss, we’ve already mentioned that the numbers will always look better than the old-school alternative. Data recoverability rates are far higher than if you were to keep information on the HDD in your office.

    The most reasonable concern for data security is that of geographical storage issues. Servers are sometimes abroad, meaning they are outside your local jurisdiction. This is a major concern that has yet to be solved. 

    Source: Unsplash

    Integration with legacy systems

    One of the biggest problems with cloud computing is that it works best when all software is up to date. Sounds simple, right? Just update your software when needed. The problem with this is that some businesses prefer legacy systems or don’t have hardware supporting the superior version. 

    In fact, there are many reasons why companies maintain legacy systems. For instance, change is hard. Just try to remember the last few changes to the Facebook interface. Not many people liked it, even though they couldn’t articulate what they disliked about it. Nostalgia is a powerful motivator, and resistance to change is a natural human reaction.

    Also, upgrading to a new system can be expensive. In the long run, legacy software will cost you more, but upgrading usually requires an upfront investment. Upgrading is always a good choice, but it’s a choice that many entrepreneurs won’t make unless forced to.

    The downsides of these problems are more severe than you may initially assume. First, compliance is much more complicated if you’re running a legacy system. Second, maintenance becomes more difficult as time goes on. At one point, you’ll have to upgrade or make a switch. Postponing the inevitable is not a sensible choice.

    Finally, and most importantly, security is weak and weakening. This is the problem that will scale up in the future.

    Dependence on cloud providers

    One of the most significant concerns many businesses have is being too cloud-dependent. While traditional computing has numerous downsides, it always felt more independent than its cloud alternative. 

    After all, your hardware is in your office, and you install all your software on these devices. Moreover, in the past, most software required a single-purchase license (compared to the modern SaaS approach). Naturally, this has business owners worried that they might become too cloud-dependent.

    Many cloud providers do not accept liability for data loss, which exacerbates the issue. This is mostly out of fear that they could be liable for the flaws in third-party apps and services.

    However, big cloud providers have data servers worldwide, ensuring that a single-point failure is not catastrophic for the client. 

    Conclusion: cloud computing can make your risk management more reliable and your business safer

    Despite fears and shortcomings, cloud computing is a huge risk management and fraud prevention asset. Increased computing capacities make threat analysis fast and accurate. Moreover, the fact that the network is global means it can check a suspicious IP and determine if it was previously involved in suspicious behavior. By preventing such access, you’re already increasing the overall security.

    Sure, there are still some concerns regarding dependency, data privacy, and compliance, but for the time being, the result of this tech trend is overwhelmingly positive. 

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    Writen by:
    Veteran content writer, published author, and amateur boxer. Srdjan is a Bachelor of Arts in English Language & Literature and is passionate about technology, pop culture, and self-improvement. His free time he spends reading, watching movies, and playing Super Mario Bros. with his son.
    Reviewed by:
    I picked up most of my skills during the years I worked at IBM. Was a DBA, developer, and cloud engineer for a time. After that, I went into freelancing, where I found the passion for writing. Now, I'm a full-time writer at Semaphore.