8 tips for building highly secure and compliant Fintech solutions

Based on the rinf.tech extensive experience with custom Fintech development and the latest market research.

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Today, many companies are hungry to enter the financial technology (FinTech) space. The reasons for this are obvious: the stakes are high, and opportunities abound.

Yet, the finance and banking industry is highly regulated, and the failure to launch to market a highly secure and compliant solution will have drastic effects on both the brand's reputation and revenues.

Fintechs need to understand their customers’ needs and the corresponding rules and regulations of each country where the solution operates. These may be data privacy, security compliance or a combination of both. The key is to align your solution with these guidelines to ensure fintech application security and avoid regulatory fines and reputational losses.

To achieve this alignment, it’s recommended that you hire or appoint a lead security consultant who’ll work alongside your product development team to ensure the right compliance standards and controls are in place.

Yet, outsourcing your fintech solution development project to a specialist provider with deep domain knowledge and an excellent understanding of the fintech compliance ecosystem eliminates the need to hire a consultant. Software consultancies specialized in Fintech solutions typically cover all bases on their own. They have software engineers with tribal Fintech knowledge and access to the newest technologies and methodologies to deliver a solution that will tick all security boxes.

Approximately 75% of high-level threats detected could have been avoided with proper application protection.

One of the most common and significant risks for fintech applications is being targeted by hacks and cyberattacks.

Of course, this should come as no surprise. Fintech is a particularly attractive target for hackers and frauds because it deals with people’s money and sensitive financial data such as bank accounts and social security numbers.

Indeed, “bank heists” now take place entirely across the Internet. A VMWare report showed that cyberattacks against the financial industry increased 238% from February to April 2021 – in just a few months.

According to Credit Union Times, attacks on Financial Apps surged 38% in H1 2021. What’s more, Imperva reported that in January 2021 alone, more than 870 million sensitive data records were compromised due to ransomware – more than the total number of compromised records for all of 2017.

According to Security Boulevard, every fintech application they tested had at least one security flaw: 84% of Android and 70% of iOS apps contain one critical or high vulnerability.

Now let’s take a look at some of the most dangerous cyber threats targeting fintech solutions today.

Major FinTech cyber threats

Although Fintech apps are subject to all kinds of cyberattacks, two of them stand out as the most popular among hackers – ransomware and social engineering.

Ransomware and social engineering

Ransomware is a malware type that encrypts sensitive files or blocks enterprises from accessing their systems and data. The only way to unlock it is to use a mathematical key that only the attacker knows, which you will receive after paying the ransom (hence the name).

A recent Atlas VPN report once again demonstrated the severity of the threat. The company found that ransomware attacks increased 151% in the first half of 2021 compared to the first half of 2020, with the United States facing more ransomware threats than any other country.

The silver lining is that a ransomware attack usually doesn’t steal or otherwise compromise user data. However, this still leads to costly service disruptions or data recovery.

Nowadays, hackers tend to ditch sophisticated attacks in favor of something much less sophisticated, but just as effective – exploiting human weaknesses.

These shenanigans are called social engineering.

Phishing is the most popular social engineering attack, accounting for over 30% of all data breaches. It involves manipulating users to divulge passwords or give administrator access to attackers using various methods, from email to fake phone calls.

Phishing

According to the FBI, phishing was the most widespread type of cybercrime in 2020, and the frequency of phishing incidents nearly doubled, from 114,702 incidents in 2019 to 241,324 incidents in 2020.

The FBI said the number of phishing complaints in 2020 was more than 11 times the number in 2016.

According to Verizon’s 2021 Data Breach Investigation Report (DBIR), phishing is the main “activity” seen in hacks over the past year, and 43% of hacks involve phishing and/or pretext.

Fraud and money laundering

Fraud and money laundering have always been serious risks when it comes to the finance industry. But with Fintech, these risks are amplified.

Fintech is a double-edged sword. While this improves consumer access to financial services, it also allows fraudsters to commit financial crimes.

For example, let’s look at money laundering as one of the most common financial crimes that government agencies always monitor.

The most important part here is the first step – placement.

The criminals take large amounts of dirty money (profits from criminal activity or corruption) and distribute it among several bank accounts and financial institutions. Smaller deposits give the impression that they are routine legitimate transactions for the authorities.

Opening multiple bank accounts used to be a problem for money launderers because banks usually had strict requirements. But not so with Fintech. Digital banks are making this process easier than ever, which means that criminals can open as many accounts as they like.

With the anonymity and ease of cross-border transactions, transferring money to a country with weaker financial regulations and anti-money laundering (AML) control is now effortless.

Unfortunately, while money laundering isn’t necessarily your fault, it can still damage your Fintech app. This diminishes consumer confidence and can lead to authorities imposing fines on you or even blocking you for non-compliance.

Perhaps the best example of Fintech scam failure is Wirecard.

In 2020, a payment processing company collapsed after its CEO and other executives took over $4 billion in a multi-year money laundering scheme.

The average cost of a data breach is estimated at $4.24 million in 2021 - the highest in 17 years.

Poor encryption and data integrity 

Encryption should be the top priority of any Fintech application. Otherwise, you will be much more vulnerable to these risks.

People will use any Fintech app based on the confidence that their data is in your hands, which is why data leaks damage your reputation.

Besides establishing trust, encryption is also one of the easiest ways to comply with most government regulations. 

For example, the Payment Card Industry Data Security Standards (PCI DSS) require companies to encrypt credit card information before storing it in their database.

While neither the Gram-Leach-Bliley Act (GLBA) in the US nor the General Data Protection Regulation (GDPR) in the EU requires encryption, they strongly recommend it for compliance.

So, how do you build highly secure and compliant FinTech applications? Let’s look at the top eight FinTech application development tips below.

fintech regulations to comply

What it takes to develop secure and compliant Fintech applications: 8 tips

1. Build with secure code

 
Your FinTech app is only going to be as good as the code that makes it tick. As such, your code must be easily adaptable and portable between devices. 
 
It should also include artificial intelligence and machine learning to detect potential threats. If that’s not possible right now, it’s best to make it as easy as possible to update and secure your code later on.
 
The best approach to writing highly secure and compliant code comes down to input reviews and validation processes. This means that all data sent out through external networks must have at least basic review and validation protocols.
 
Product owners must define clear rules and provide access to only essential functions and features. Do whatever you think is necessary to secure your environment, as SQL injection attacks are always a consistent threat.
 
It’s also important to develop applications with secure application logic. This means you must integrate security at every stage of the application development life cycle. Every aspect of your FinTech application, including all future updates, must be protected from potential threats.
 
So, follow security best practices:
 
  • Backup all data regularly
  • Demand the use of strong and complex passwords
  • Employ Multi-Factor Authentication (MFA) and Two-Factor Authentication (2FA)
  • Enforce mandatory password changes
  • Maintain a data log of user behavior, IP address, device information, and their geolocation
  • Monitor transactions in real-time and block suspicious ones
 

2. Build with secure infrastructure

 
It’s vital to build FinTech applications on IT infrastructure that’s both reliable and secure. If you’re hosting your application on a cloud, it’s critical to partner with a trusted cloud services provider that meets established cloud security standards. 
 
Of the many security standards that we must adhere to, the most important ones are as follows:
 

ISO-27001/ISO-27002

 
Whenever you’re dealing with sensitive data, it’s crucial to follow ISO-27001 and ISO-27002 standards. It’s vital because ISO-27001 includes Information Security Management System (ISMS) specifications. 
 
Furthermore, ISO-27002 defines the controls you must implement to ensure compliance with ISO-27001 standards. Whenever your FinTech app boasts ISO-27001 standard, it shows your customers that you’re serious about privacy and security. It also shows them that you’re following best practices. 
 

ISO-27017

ISO-27017 is an extension of ISO-27001 and includes clauses that relate to security in the cloud. As such, whenever you consider compliance with ISO-27017, it must also have ISO-27001.
 
This is because it’s essentially an extension to ISO-2700. It contains several clauses related to information security but in the context of the cloud. You should also consider ensuring compliance with ISO-27017 alongside ISO-27001.
 

ISO-27018

ISO-27018 concentrates on personally identifiable information (PII) in the context of public cloud environments. More specifically, this security standard focuses on major players like Amazon Web Services (AWS) and Microsoft Azure.
 
This approach helps protect against security threats like DDoS attacks. Following this approach helps ensure that you have processes in place to respond and recover from such security incidents.
 
You must develop FinTech apps based on compliant cloud infrastructure if you’re operating across countries and jurisdictions. This means you have to take steps to ensure that your cloud services provider follows the same security standards and best practices.
 
It’s also critical to achieving total visibility of your infrastructure to secure it.

Are you looking for a reliable Fintech software development partner?

rinf.tech is an ISO-27001-certified software company with own R&D & 4 Delivery Centers in Europe.

3. Encrypt Everything (Especially Sensitive Data)

 
If the unthinkable happens, encryption is like your last line of defence or an insurance policy. This is because any stolen data is meaningless to threat actors without the right corresponding decryption keys. 
 
As you’re handling financial data (like credit card numbers, payment history, receipts, etc.) and PII (like name, address, and more), you must make an effort to encrypt that data. This approach helps secure the data in motion and at rest.
 
There are several robust encryption protocols like:
 
  • Advanced Encryption Standard (AES)
  • Rivest-Shamir-Adleman (RSA) algorithm
  • Triple Data Encryption Standard (3DES)
  • Twofish
 
You can respond to an active security event when you have a robust encryption strategy knowing that your data is encrypted and secure.
 
advanced encryption standard protocol
 

4. Test and Then Test Some More 

 
Quality assurance (QA) and security testing are crucial parts of this whole process. So, while your QA team tests every line of code during each iteration, your security team should do the same. 
 
Once your FinTech solution is ready to go live (and, of course, once it’s live), engage in penetration testing by launching simulated attacks. This approach helps companies identify and resolve potential vulnerabilities before bad actors discover and exploit them.
 
Whenever your code is subject to QA and security tests, you’ll also eliminate tech debt. When your code is deemed “attack resistant,” you can safely transfer it to production. However, it’s vital always to have a plan B to respond to potential emergencies. 
 
As such, establish clear access rights to avert data leakage during the development cycle. Furthermore, make sure that your development team signs a nondisclosure agreement before writing a single line of code.
 

5. Conduct penetration testing

Penetration testing (aka pen testing) is a simulated attack by a hacker. In web application security, penetration testing is commonly used to extend the web application firewall (WAF).

Penetration testing can involve attempts to break into any number of application systems (e.g. application protocol interfaces (APIs), front-end/back-end servers) to identify vulnerabilities such as unsanitized inputs that are susceptible to code injection attacks.

The information obtained from the penetration test can be used to fine-tune WAF security policies and fix discovered vulnerabilities.

Stages of pen testing

1. Planning and exploration

The first stage includes:

  • Determination of the scope and objectives of the test, including the systems considered and the test methods used.
  • Gathering information (for example, network and domain names, mail server) to understand better how the target works and its potential vulnerabilities.
2. Scanning

The next step is to understand how the target application will respond to various intrusion attempts. This is usually done with:

Static analysis – checking the application code to assess its behavior during operation. These tools can scan all the code in one pass.

Dynamic analysis – checking the application code in working order. This is a more practical way to scan because it gives you real-time insight into the performance of your application.

3. Gaining access

This phase uses web application attacks such as cross-site scripting, SQL injection, and backdoors to discover target vulnerabilities. Testers then try to exploit these vulnerabilities, usually through privilege escalation, data theft, traffic eavesdropping, etc., to understand the damage they can cause.

4. Maintaining access

This phase aims to see if a vulnerability can be exploited to ensure a permanent presence on an exploited system – long enough for an attacker to gain comprehensive access. The idea is to simulate complex persistent threats that often remain on the system for months in order to steal the organization’s most sensitive data.

5. Analysis

The penetration test results are then combined into a detailed report that states:

  • Specific vulnerabilities that were exploited
  • Access to confidential data
  • The time during which the pentester could remain unnoticed in the system

This information is analyzed by security personnel to help tune enterprise WAF settings and other application security solutions to remediate vulnerabilities and protect against future attacks.

Pen Testing Methods 

External testing

External penetration tests target company assets that are visible on the Internet, such as the web application itself, its website, and email and domain name servers (DNS). The goal is to access and extract valuable data.

Internal testing

In an internal test, a tester who has access to an application behind his firewall simulates an attacker. This is not necessarily an imitation of a fraudster. A typical startup scenario could be an employee whose credentials were stolen due to a phishing attack.

Blind testing

In a blind test, only the name of the target enterprise is given to the tester. This gives security personnel the ability to see how the actual attack on the application will occur in real time.

Double-blind testing

In a double-blind test, security personnel have no prior knowledge of a simulated attack. As in the real world, they will not have time to strengthen their defences before attempting a breakout.

Targeted testing

In this scenario, both the tester and security personnel work together and keep each other informed of their movements. This valuable training exercise allows the security team to receive real-time feedback from the hacker’s perspective.

Check out some of our custom-built Fintech solutions

6. Leverage Code Obfuscation

FinTech solutions need to use code obfuscation. This approach helps secure your application from malicious cloning campaigns. In this scenario, financial application clones will look to gather sensitive PII through cloning.

Software cloning is a popular technique used by hackers to trick the user into sharing their sensitive data. But whenever you use code obfuscation, it makes analyzing the app’s source code a significant challenge. In fact, it’s impossible to understand how the algorithms work, thwarting attempts to reverse engineer a FinTech app.

Regardless of your business vertical, building secure and compliant solutions is critical to business relevance. As such, enterprises must follow security best practices every step of the way.

7. Implement and improve KYC

As a Fintech app provider, it is your responsibility to protect your clients from financial crime and prevent it in the first place.

Know Your Customer (KYC) initiatives are crucial for the fight against money laundering. The goal is to make sure that customers are who they are and not a pseudonym for someone with a criminal record.

KYC is a mandatory verification process that each client signing up for your fintech solution will have to undergo for money laundering and security breech prevention. The verification repeats with regular intervals after that. This is often due to the fact that the account holder presents government identification cards, photographs, and other legal documents used to identify them.

However, scammers are becoming more sophisticated, cheating KYC using fake IDs and even wax figures to create deepfake photos and pass verification.

One way to get around it is to leverage survivability detection technologies.

For example, you can ask people to perform random actions or show the current date in a live video to authenticate them.

But KYC is just the beginning. Using AI for continuous monitoring of user behavior is critical.

AI solutions can help you detect unusually high costs, resetting multiple passwords, address change requests, and other suspicious activity related to fraud or hacking.

8. Ensure data integrity

Integrity and completeness is another important data issue. In other words, how do you know the data you have is reliable?
Anything from corruption to deletion can happen to data during storage or transfer. Unfortunately, this can lead to inaccuracies and errors that can be fatal to the financial sector.

Can you imagine a catastrophe when even one zero is missing on the balance of a client’s bank account?

Ensuring the integrity and completeness of your data is all about doing due diligence. In particular, your system should alert you if the data is incomplete or comes in an unexpected format. This allows you to detect and fix the problem early.

Having a single consistent format also helps make data comparison and management much easier.

Finally, a good reconciliation process is needed to identify discrepancies by comparing them with an independent source.

Final Thoughts

As you can see, creating a Fintech application is not an easy and risky task. When not properly addressed, you can face a range of financial and regulatory challenges.

Being aware of these risks gives you an edge over many other Fintech app developers because you already know what you’re running into.

Now all you need is a reliable crew to help you navigate this unchartered water safely.

Why build your custom Fintech solution with rinf.tech?

At rinf.tech, we’ve been helping finance and banking companies, both startups and world-famous established brands, design, develop, and deploy highly secure and compliant scalable applications since the advent of Fintech. Our outcome-based approach has helped our partners ensure uptime, deliver enhanced user experiences, and (most importantly) avoid security breaches.

Embedding security early and throughout the lifecycle of FinTech solutions is vital to strengthening and maintaining your security posture. It’ll also help nurture a culture of cybersecurity throughout the organization.

Get in touch with our in-house security specialists to find out how we can help better secure your next FinTech project!

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