Any technological innovation comes with security risks, and open banking is no exception. Open banking relies on APIs to connect banks (and their essential services) to their customers. While it is exceptionally convenient and provides several valuable services for consumers, open banking relies on APIs to function.
APIs are a critical component of your customers’ web experience and your open banking operations. However, they bring with them a wide attack surface and unique vulnerabilities that you must address to be compliant with security standards and laws. To maximize API security, consider implementing multi-factor authentication, authorization protocols, and other tools.
Regulatory Compliance in Open Banking APIs
Many banks are adopting open banking APIs, which are designed to provide a variety of features to customers. Generally, these third-party APIs help customers easily access basic financial services, like their checking and savings accounts.
For banks to work with the developers of these APIs, all involved providers should observe guidelines like the revised Payment Services Directive (PSD2) and Strong Customer Authentication (SCA). Although these requirements currently apply to companies doing business in Europe, they are useful tools for securing all banks’ products and services.
PSD2 requirements include SCA. SCA requires organizations to use multi-factor authentication to control access to banking and financial information. The requirements are:
- Knowledge-based credentials. SCA requires customers to use three different types of authentication to utilize digital wallets and payment platforms. The customer must be able to authenticate with things like passwords, passphrases, or PINs.
- Ownership-based verification. A customer should be able to verify his identity using something he owns. This could be a device, like a phone or smartwatch. Alternatively, some consumers prefer to use tokens or smart cards.
- Biometric verification. Your organization can collect and store data like fingerprints, voice recordings, and facial features, any of which can be used with recognition programs to verify identity. Customers should be using at least two out of three authentication methods for transactions, though there are exceptions for things like in-person POS transactions.
When third-party APIs are between the customer and sensitive information, security must be prioritized. This is especially critical when dealing with banking and financial data, as any breach could expose customers to significant financial risks. Data protection measures are essential, and privacy considerations that line up with PSD2 and SCA provide the right guidance to keep your customer data locked down.
Implementing Strong Authentication and Authorization
With sensitive data, especially financial information, it’s essential to implement effective security. Open banking is the path forward, but it comes with security risks that have to be mitigated. When users try to log in, your organization must prioritize accurate authentication and authorization to make sure that improper access is not given.
Many attackers will try to gain access to individual user accounts by social engineering attacks and compromised credentials. To minimize this risk, multi-factor authentication is one of the easiest and most effective tools you can implement. Multiple verification methods prevent an attacker from accessing a user’s account by compromising a PIN or password.
Two other protocols should be used to secure APIs designed for open banking:
- OAuth 2.0. This adds a layer of authentication to the API to prevent unauthorized users from illicitly accessing consumer data. An access token is used by the client to access server resources, typically in a limited capacity.
- OpenID Connect integration. This is a single sign-on protocol that provides one set of login credentials that identify users across multiple platforms. A common example of this is using your Google account to sign in to multiple other accounts.
While neither of these protocols is a perfect solution, implementing them can help verify legitimate user identities and limit unauthorized access. Fine-grained access control for third-party providers is also an important component of securing data. Your organization should implement a zero-trust environment to limit unauthorized access.
This means limiting the amount of data an employee can access and monitoring activity within your environment. Zero trust also requires that all devices and APIs connecting to your network be authenticated.
Monitoring and Threat Detection for Open Banking APIs
While authentication and authorization tools are essential, they are only part of effective security for open banking. It’s also important to limit unauthorized users from reaching access points in the first place.
Many potential attacks can be detected by monitoring for unusual activity at the edge of the network or at API access points. As a rule, detecting issues immediately leads to faster response times, and faster response times mean there is less likely to be significant damage to your infrastructure or severe data compromise.
To accomplish this, consider implementing real-time anomaly detection tools. Automated monitoring can keep an eye on your entire network and alert you to anomalies, saving you time and improving detection rates. Some of these tools also enforce access control policies, which can limit an attacker’s access to your network even if an attack is successful.
Additionally, your organization should implement fraud prevention mechanisms using AI and machine learning. Modern, lightweight Web Application and API Protection (WAAP) solutions can help with this. WAAP solutions act as a first line of protection around APIs by detecting and blocking unusual activity patterns.
WAAPs that leverage machine learning and AI are more effective than traditional solutions. These advanced technologies enable them to respond to the much more subtle attacks currently favoured. Additionally, a historical weakness of WAAP is unknown attacks.
Zero-day attacks do not have known patterns and thus could sometimes evade detection. With machine learning, the WAAP can use context clues more effectively. This and the other available tools improve the accuracy of detection and protect your open banking API from threats and unauthorized access.
