Embracing Fintech innovation brings about unidentified risks and potential frauds to its financial services sector. Pertinent anti-fraud and cybersecurity measures are to be approached. Partnerships between financial institutions (FI) and FinTech (financial technology-based start-ups) must go beyond the customer value proposition. Strict regulations for securing electronic transactions, specifying how payment data can be captured, stored and organized and GDPR on customer privacy, require cybersecurity to be embedded into all stages of the customer journey.
To provide end-to-end protection of customer information and financial assets, all partner systems must include authentication and authorization, protection of data, system integrity and proactive detection and response to cybersecurity incidents. As Application Programming Interfaces (APIs) are the key to partner connectivity, implementing high-grade API security is imperative.
Opening APIs to FinTech partners in their target market segments extends a bank’s ability to acquire, engage and transact with their customers. PwC’s 2017 survey of 39 leading banks in seventeen countries found that “92 percent of banks state that partnerships with non-banks will be highly important or important in future” and that “71 percent of banks agree or fully agree that partners/collaboration will be required to keep up with the pace of innovation”. Survey respondents described FinTechs’ strengths as bringing new technologies and improved customer experiences, while FIs’ strengths are their secure infrastructure, existing customer base, knowledge of customers, and data availability.
But the risks don’t go away, nor does the FI’s responsibility to regulators and customers to keep customers’ sensitive information and funds safe. FIs need to increase their vigilance to protect against the loss or theft of customer information, unauthorized transactions, or their systems or accounts being used for money laundering or breaching sanctions.
Threats from viruses, malware, man-in-the-middle, phishing and denial-of-service (DOS) attacks are amplified when partner systems are added to the FI’s digital ecosystem.
Protecting against threats requires an ecosystem-wide approach to cybersecurity, including:
- vetting of partners before granting access to the FI’s production systems;
- granular monitoring of API usage by partners;
- verifying the identity of partner systems;
- tokenization: replacing sensitive customer data with a token or placeholder. This enables the FI to match the customer within their ‘token vault’ without exposing the original data.
The challenge for FIs in fostering a partner ecosystem is to educate the partner’s developers in how to use their APIs without giving away information that could be used to hack the system. To encourage developers to trial APIs, many institutions are publishing developer portals, with guides, sample code, and a ‘sandbox’ environment that enables developers to make simulated API calls. While sandboxes make it easy for developers to develop and test their prototypes, allowing a partner application to call the FI’s production APIs requires more rigorous checks. FI’s must satisfy themselves that both the FI’s and the FinTech’s controls protect customer information and production systems before partner applications access the FI’s live production systems.
The beauty of APIs is that they place a layer of abstraction over the FI’s systems. They don’t have to give out information about the underlying system (and partners don’t have to know how the underlying system works in order to interact with it). Also, by granting just one way in to an FI’s systems, access and usage can be closely monitored.
Changing from a traditional customer-FI interface to a three-way customer-Fintech-FI model increases the “attack surface” (more points to attack and breach). This requires a new cybersecurity trust model, whereby a customer can consent to the FI granting the FinTech access to their account information without exposing the customer’s login credentials. Therefore further governance and information security controls must be adopted in order to protect a client when using intermediary FinTech services.
Building FI/FinTech partnerships necessitate taking an ecosystem-wide approach to cybersecurity. This includes developing a robust partner screening and onboarding process, applying OAuth2.0 and OpenID Connect security protocols, methods such as digital certificate-based authentication and tokenization, and integration with the FI’s Security Incident and event management processes.
Building these controls into partnership formation and expansion will ensure that FIs, FinTechs and their customers can (safely) reap the benefits of partnerships.