In this guide, we’ve collected the primary challenges associated with fintech applications security and regulatory compliance and provided strategies to surmount them. These insights can be seamlessly integrated into your project plan, ensuring that no critical aspect is overlooked.
Brief Overview of 5 Fintech App Security Challenges
Huge opportunities and challenges in fintech are two sides of the same coin. As digital transformation in finance is gaining momentum, we have seen a spike in cyber threats like phishing, malware, and ransomware. These threats can lead to compromised data, financial losses, and tainted reputation. So it’s crucial to ensure that your fintech products are secure and your customer’s information remains private.
1.Authenticating Real Identities
A cornerstone of fintech app security is verifying who you’re dealing with, as well as ensuring safeguards against scams and illegal transactions.
When bad actors take over a user’s account, it’s typically because of vulnerabilities like simple passwords or successful phishing attempts. Such breaches can lead to unauthorized actions, stolen funds, and exposed private details.
So, how can fintech service providers up their game? By using enhanced identity checks without invading user privacy. The possible solutions may include multi-factor authentication, fingerprint or facial recognition, or aligning with trusted identity check services and KYC providers.
2. Guarding Sensitive Data
Fintech firms handle a goldmine of sensitive data, from financial specifics to personal details about clients. Key security strategies include encrypting data, ensuring data can be recovered if lost, and strictly regulating who has access to it. Additional layers of protection like secure storage solutions and Data Loss Prevention tools are also pivotal.
Read how MobiDev ensures a high level of software product development security in the guide below.
3. Navigating Third-party Partnerships
Many fintech apps function better with the help of third-party services. However, these integrations can be a double-edged sword, potentially opening doors for security breaches. It’s vital to thoroughly analyze potential partners, establish secure communication pathways and API development or integrations, and constantly review data shared between platforms. Moreover, these third-party vendors should be held to high-security standards, and regular audits should always be planned and implemented.
4. Staying on the Right Side of the Law
Regulations aren’t just hoops to jump through. For fintech companies, adhering to standards like KYC rules, AML directives, and data protection statutes is essential. Ignoring or being unaware of these can lead to legal troubles, hefty fines, and a sullied reputation. We will get back to it later in this guide.
5. Being Mobile: Convenient but Risky
Given the convenience, it’s no surprise fintech apps see a lot of traffic from mobile devices. Yet, this also means they’re exposed to threats like mobile malware, insecure public Wi-Fi, and the simple risk of device theft.
In addition to your customers, your employees can also use smartphones and tablets to work with sensitive data. For example, customer accounts, reports, etc. This is also an additional risk of data leakage. To combat this, solutions like Mobile Device Management (MDM) can be adopted, which help in setting device encryption, solidifying password protocols, and ensuring a consistent security posture across devices within your corporate network.
How to Ensure Fintech App Security: Key 7 Aspects
Building reliable fintech products requires a security plan that involves a development phase, software testing strategy, vulnerability management, maintenance strategy, etc. Let’s dive into the key 7 aspects of secure fintech application development.
1. Develop a secure architecture for your fintech app
When we are talking about fintech product development, the need to store confidential data and sensitive information can determine the architecture of the system. The main points to which you need to pay special attention are:
- Establishing a secure connection between the application and backend infrastructure.
- Leveraging protocols like HTTPS/TLS to safeguard sensitive data while it’s being transferred.
- Adopting rigorous certificate management and sticking to recommended guidelines for a safe configuration.
When your fintech app either interacts with external APIs or showcases its own, it’s vital to have robust authentication, authorization, and input verification processes in place. Taking into account that most fintech users access these apps on mobile devices, the APIs connecting to the backend are frequent targets for cyberattacks. Ensuring the security of these APIs is paramount to safeguard the entire application.
It’s also crucial that the blueprint of your fintech solution is well-equipped to ward off potential vulnerabilities. Collaborating with seasoned architects is advisable, as they can build an appropriate architecture tailored to your needs, be it a monolith or microservices.
2. Build secure identification, authentication, and authorization processes
Fintech apps must be built in a way that ensures that hackers can’t pretend to be someone else to get сustomers’ personal information.
To boost app security, strong password rules are vital, like having at least 12 characters, being complex and changed regularly. Using multi-factor authentication (MFA) adds more safety by asking users for multiple proofs of identity. Always use secure protocols like HTTPS when sending sensitive information to keep it safe from prying eyes and tampering.
Using biometric authentication, like fingerprints or facial scans, offers a unique way to check someone’s identity. It’s a good idea to pair biometrics with other methods like passwords or one-time passwords for extra protection. That way, even if someone steals biometric data, they’ll need more info to get access.
Lastly, set up defenses against fake biometric tricks. Anti-spoofing techniques like having users perform certain actions can help confirm that the biometric data is real and not a scam.
3. Set user roles and permissions
User roles and permissions define rules and set who can do what within a system. By giving users specific roles and only the access they need, organizations make sure users can only see or do what’s necessary for their job. This “least privilege” approach lowers the chances of unwanted access or harmful actions.
By giving users access based on their job duties, organizations ensure that only the right people can see confidential information. This way, the probability of viewing and changing important data is dramatically reduced, which helps prevent leaks or unintended sharing.
For some fintech projects, it’s important to implement not only roles to access the system but also the ability of individual users to access individual files, such as invoices, reports, etc. To do this, we can provide the user with a unique link that is valid for a limited time. This way we don’t link to the file itself. All requests go through the backend and access is granted only to authorized users.
4. Ensure secure data storage and transmission
For fintech app security, strong encryption is a must to protect data, whether it’s stored or being sent. We recommend using the best encryption methods and managing encryption keys to keep sensitive information safe. Using secure methods like TLS/SSL for sending data stops outsiders from snooping or altering the data, keeping user information safe every step of the way.
Data loss can happen due to mistakes or tech issues, not just external threats. Back up important data so you don’t risk losing it entirely.
5. Provide defense against cybersecurity threats
Protecting users from cyber threats should include auto-logouts after sessions, frequent security updates, and making sure the app is only found on reputable platforms like Google Play or the App Store.
Artificial Intelligence and Machine Learning can be leveraged to monitor user actions to spot unusual patterns and strange activities. For instance, stopping transactions from suspicious or unfamiliar IP addresses. Key tactics to defending against cybersecurity threats may include anomaly detection, fraud detection, threat intelligence, and risk scoring.
Find some advice from our AI Team Lead below.
Anomaly detection
Use ML models to spot unusual user actions, transactions, or network activity. By knowing what’s normal, anything different can be seen as a possible threat. For example, techniques like clustering will help with highlighting odd actions, such as unauthorized account access.
Fraud Detection
ML models help spot fraud as it happens. They analyze transactions, user behavior, and past fraud to identify possible threats. Methods like logistic regression or any different supervised classification models are handy for this.
Threat Intelligence
ML helps collect and assess threat data from places like security updates or the dark web. It can spot new threats or weak spots to better protect a fintech app.
Risk Scoring
ML gives risk scores to users or transactions by looking at past data and actions. By considering factors like transaction size or user past actions, ML can gauge the risk of fraud and activate extra security if needed.
6. Conduct security testing and software component update
Regular security checks help in spotting and rectifying vulnerabilities. Tools and manual reviews might reveal issues like outdated software, misconfigurations, or weak settings.
Security testing is an ongoing process throughout the software design to maintenance stages. After any updates, new vulnerabilities might emerge. Documentation of discovered vulnerabilities and a structured approach to address them is beneficial.
In addition to testing, you will need to conduct regular software updates to maintain a secure environment. Outdated components can be prime targets for cyber-attacks, as they might contain unpatched vulnerabilities. Therefore, by keeping software components up-to-date you will ensure the safety of financial transactions and sensitive user data.
7. Comply with fintech regulations
Ensuring regulatory compliance undoubtedly affects the cost and time of launching a fintech product. Some businesses require special licenses, such as a bank license, to open a crypto exchange or custodial crypto wallet in the USA, for example.
Moreover, fintech regulations greatly depend on the region and functionality of your application. For instance, if the app doesn’t act as a broker, crypto, or fiat wallet and doesn’t store payment card data, then it will be subject to less regulation.
In any case, the launching of a fintech business requires a serious legal analysis before starting development, since the need to comply with regulatory frameworks can impose additional requirements on the technical part of the product implementation.
Let’s take a look at the most common fintech regulatory frameworks.
Anti-Money Laundering (AML)
Money laundering can take various forms, such as using shell companies, splitting large sums of money into smaller deposits across multiple accounts, or utilizing cryptocurrency mixers to disguise the source of funds.
As was mentioned, AI and ML can be used to detect suspicious activities, automate reviews, and offer real-time transaction alerts. For instance, some capital market firms use AML solutions to reduce exposure to financial crimes, while money launderers might exploit insurance policies or even retail businesses to make their illicit funds appear legitimate.
Know Your Customer (KYC) and Know Your Business (KYB)
The main aim of KYC procedure is to ensure genuine customer identification and prevent illegal activities like money laundering.
The KYC Process includes two big parts:
Identification of a person and verification of his/her rights to use the system:
- person uploads identity documents for verification
- system checks the data for compliance with the format, expiration date, etc
- system checks the person in the state registers (whether documents with such an ID really exist, and whether the data correspond to the register)
- system initiates the sanctions screening process checking whether the person is listed in the sanctions databases.
Confirmation that the person who downloads the documents and fills out the forms is in fact the owner of these documents.
- verification of the person’s image and comparison with the photo on the documents.
- fingerprint verification (if samples are available)
- voice verification (if data is available)
- phone and email verification (OTR, magic link)
An important aspect of the KYC process is authentication of the identity of biometric data. The system must make sure that a person really captures his/her face or really speaks, and doesn’t just try to take a photo or provide a recording of the voice of someone else. For this, the system must include anti-spoofing features.
Mostly, KYC is a combination of AI-assisted algorithmic and manual checks. Therefore, such systems usually involve creating a dashboard for Compliance Officers who can review the results of automated actions, manually correct them, or make decisions if algorithms and AI tools can’t make it.
When it comes to B2B apps, Know Your Business (KYB) appears. In this case, the documents of the company and the documents of the person representing the company are checked.
You can provide KYC/KYB both by integrating with third-party tools or developing your own systems if ready-made solutions don’t meet the requirements of your project.
Payment Card Industry Data Security Standard (PCI DSS)
The Payment Card Industry Data Security Standard (PCI DSS) is a set of rules for companies using international payment systems. It includes 12 requirements focused on fintech data protection. However, these requirements can differ based on the country and specific card, such as different standards for Visa cards in the US and Europe.
Case Study: CRM System Development with QuickBooks Integration
As you can see, the specific plan and means of securing fintech applications will be unique for each project. Let’s dive into MobiDev’s expertise in developing secure financial applications now.
Project Overview
The MobiDev team was involved in the software modernization project for a US-based roofing & construction company. Our client needed to update a CRM product with QuickBooks integration and improve its security. The system relied on outdated technologies, which posed a lot of risks and made security a top priority for future enhancements.
To address the potential security risks, the MobiDev team implemented the following solutions:
- Project tech audit: Our tech team conducted an in-depth project review, which included analyzing the system for vulnerabilities and security issues. We recorded the results of the inspection in a report with a list of tasks, their prioritization and an estimate of their completion. This allowed us to create a clear roadmap for further product modernization.
- Framework update: The project used outdated technologies such as the CodeIgniter 3. Unlike modern PHP frameworks, it didn’t have organized file protection that could withstand modern risks. Also, it lacked automatic update mechanisms. This could cause data leakage and expose the system to a scan.
We started a process of migration to the newer version of CodeIgniter. This step helped us to solve a large number of identified issues. However, due to project complexity, we couldn’t switch to CodeIgniter 4 right away, and the tech team had to make small changes to the kernel of the current version of the framework to fix some critical bugs. The project is still in the process of migration, so engineers work with both versions of the framework, keeping the system stable. - Data protection: All sensitive data was protected without the ability to access the folders that store this data by entering the site address in the browser.
- Continuous integration (CI): We introduced a CI approach to automate integration of code changes using Jenkis credentials. This made it possible to configure dedicated access control to these credentials and maximize security.
- User access control: For the end users of the system, a mechanism of roles and permissions attached to the role was also developed. There are 5 roles in the system, including a super admin who can manage other roles.
- QuickBooks Integration: We used QuickBooks API to integrate with the backend, but ensured additional backend security with passwords and two-factor authentication.
- Lock mechanism: A screen lock mechanism has also been developed for end users, allowing them to lock the screen without logging out. Using a personal code, users can quickly unlock the screen and continue work from the place where they left off.
The listed steps enabled us to significantly increase system security and get rid of vulnerabilities caused by outdated technologies. MobiDev continues to work with the customer on improving performance and implementing new features.
How MobiDev Can Help You Ensure Fintech Product Security
Fintech projects are commonly considered to be challenging due to their technical complexity, potential security threats, and regulatory compliance. Therefore, to build a top-notch fintech product, you will need to involve seasoned experts who understand both technology and business and can help you mitigate all possible risks.
MobiDev’s expertise in fintech software development and security enhancement allows us to create effective fintech products. Our specialists can help you with various aspects of product development or improving an existing one, from the business perspective to tech implementation and incorporation of innovative features. Throughout development, we emphasize security using our internal checklists and best coding standards.
Contact us to discuss your fintech project requirements and how we can fulfill them.
