APIs and the 3 Major FinTech Challenges - Security, Compliance and Regulation

APIs in FinTech and the major issues with security, compliance and regulation.

a year ago   •   5 min read

By Leigh Wallett
Table of contents

When it comes to FinTech and APIs we hear the same 3 words on repeat:

  • Security
  • Compliance
  • Regulation
When we speak to our FinTech customers, their main concerns are always: security, compliance, and regulation.

It makes complete sense with the volatility and uncertainty in the financial world right now. The rapid downfall of Alameda, FTX, Silvergate, and Silicon Valley Bank shows how high the stakes are.

Technology has been disrupting finance since the abacus was invented. As technology gets more complex (blockchain and AI, we’re looking at you), it’s getting harder to keep up with security, compliance, and regulations.

Even regulators are finding it hard to keep up with the rapidly evolving technological advances.

So where do APIs fit in, are they part of the increasing complexity or could they offer a solution to the challenge?

Finding the balance in FinTech API Security 

We believe APIs are the next level of awareness in understanding your security and compliance. In this blog, we’ll guide you through using APIs to stay ahead of FinTech security, compliance, and regulation.

The Current Landscape of FinTech Security, Compliance, and Regulation

The collapse of FTX and Silicon Valley Bank clearly demonstrates why security, compliance, and regulation are needed in FinTech.

Regulation is in place to:

  • maintain stability,
  • protect customers and investors
  • and prevent fraudulent and illegal activities in the financial industry.

Good governance requires transparency, data privacy, and security. The benefits of FinTech compared to traditional banking is that it should allow for greater transparency and security. There is an entire category of tech designed to help with compliance and regulation: RegTech.

Unfortunately, private companies and government bodies are struggling to stay on top of new risks and regulations. Technology like blockchain and cloud computing currently show the limits of cybersecurity risks and regulations. Cryptocurrency was a regulatory no man's land until 2019. A 2023 PWC report shows that out of 35 countries reviewed, 85% have Anti-Money Laundering or Counter-Terrorist Financing regulations for crypto.

AI-enabled attacks are the next frontier of challenges on the horizon. The latest Gartner Report on cyber security highlights the risk of human failure rather than technological failure. They emphasize how important data-driven decision-making will be in maintaining security.

How APIs Help with FinTech Security

The truth is security has always been a challenge in finance, even before complex technology. Technology provides the opportunity to leap forward with security. It also highlights how precarious security has always been.

API Security

Most banks are still operating on systems built in the 1950s. The majority of their security comes from a nearly impossible-to-navigate web of systems and data. APIs provide the key to modernizing this outdated infrastructure. Best of all, they can be applied at a pace and scale that allow businesses to evolve rather than require a complete revolution.

Data Sharing and Security

APIs can help make sense of the data generated. This is especially true when APIs are viewed as products in their own right. Each package of data has a clear purpose and use case.

It can be widely understood by those in both technical and non-technical roles. This means they can be clearly communicated and used widely across the business. Moreover, they can connect traditional tools and systems that previously worked in isolation.

These two opportunities: clearly packaged data and connected infrastructure, are simple changes with major impacts.

What does this mean for security?

Will easier-to-navigate data and systems lead to increased risk? This is where APIs provide an additional benefit.

Clearly packaged data and connected systems create an automatic map to monitor your system's security. You can observe your APIs to instantly see their performance, quality, and security. The transparency will work in your favor. Gain peace of mind at a glance when you can easily see all of your systems and data are secure.

Fraud Detection

Fraud is a major challenge in Fintech. Apps are relying on an increase in warning messages and safety checks to make people aware of scammers and fraud artists. The next frontier of fraud will be the use of AI to outsmart people.

This is why data-driven fraud detection is so important. APIs play a crucial role in this infrastructure. Defined ranges of data and call patterns that show bot activity and seldom used APIs can help to highlight fraudulent activity. Instant notifications of unexpected behavior can help with quick intervention and increased security measures.

How APIs Help with FinTech Regulation and Compliance

FinTech regulation is a grey area. Traditional banks have built up regulations over centuries. FinTech, as we know it, went through its first major growth spurt between 2008-2018, and to this day, it doesn't show any signs of slowing down. Regulation for Fintech is still being established and understood.

FinTech API-First Companies Growth

There is a balancing act between innovation, consumer protection, and financial stability. Some of the regulations that have been introduced to strike this balance are open banking, and data protection regulations.

Open banking aims to securely share customer data for greater competition and innovation. On the other end of the spectrum, data protection regulations like the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) in the United States give customers greater control over their personal data.

How do APIs help maintain compliance with these regulations?

Firstly APIs provide secure and standardized ways to share data. This is essential to comply with open banking regulations while maintaining customers' data privacy.

The new partnership between ConTe.it Prestiti and Tink shows how powerful open banking with APIs can be. Tink has expanded its access to APIs and customer relations through acquisitions. With this connected data they created an automated Income Check tool. Now banks can instantly check customers' incomes and make real-time lending decisions.

Secondly, APIs can be used to create strong authentication and access control measures, such as OAuth 2.0 or API keys, to ensure that only authorized users can access sensitive data and systems.

Finally, real-time observation of APIs transactions and events makes it easy to detect and respond to security breaches or other incidents. By leveraging APIs as part of their security strategies, FinTech companies can help to build trust with their customers and maintain the integrity of their operations.

How to Use APIs to Stay Ahead of FinTech Security, Compliance, and Regulation

Technology and Financial Services are in a long-term relationship. From mobile and digital payments to blockchain and cryptocurrency, their relationship is just getting started. Cloud computing and robo-advisors are now widely established. It’s hard to predict the impact Artificial Intelligence and machine learning will bring next.

These technologies have the ability to make transactions faster, more secure, and more accessible while also improving decision-making and customer service.

The common denominator amongst all these changes is APIs. APIs are the key to implementing these changes by providing a standard language. They also play a role in solving the challenges with security and compliance with regulations. These same APIs that connect your data and infrastructure to different technologies give you the ability to observe how healthy your system is.

At Treblle we’ve dedicated our business to API observability. If you don’t have oversight of your APIs, you’re missing out on their superpower.

Over the next few months, we’re putting a spotlight on how API observability can help give you peace of mind regarding your security, compliance, and regulation. Join us for a conversation on how to make the most of your APIs at our upcoming webinar.

Sign up for your personal invitation here.

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