Protecting Open Banking APIs: Best Practices

Empowering Consumers While Protecting APIs

The U.S. Consumer Financial Protection Bureau (CFPB) recently mandated digital interfaces (APIs) to promote secure, authorized data-sharing between financial institutions and third-party applications. These APIs empower consumers, offering more control over their financial data across banking, budgeting, and investment platforms. However, this also introduces heightened privacy and security concerns, making robust API security strategies essential.

Open Banking Standards

To support open banking’s secure data-sharing goals, several industry standards have evolved, including:

• FDX (Financial Data Exchange): In the U.S., FDX sets technical standards for secure and transparent data sharing. FDX advocates for uniform, consent-driven data access, improving interoperability and security in the financial ecosystem.
• OFX (Open Financial Exchange): Originating in the 1990s, OFX is a global standard that facilitates data exchange across financial institutions and third-party applications. Over the years, OFX has adapted to meet rising cybersecurity expectations, incorporating stronger authentication and encryption protocols.

Both FDX and OFX play pivotal roles in guiding financial institutions and third parties to implement secure applications and APIs, aligning with the goals of open banking by promoting secure, user-consented data-sharing practices.

Key Security Measures for Protecting Open Banking APIs

1. Implementing Strong Authentication and Authorization
   The foundational layer of API security involves robust authentication and authorization protocols. Common industry standards like OAuth 2.0 offer mechanisms for secure token-based access, reducing the likelihood of unauthorized access. By incorporating multi-factor authentication and dynamically updating access tokens, financial institutions ensure that only authorized entities can access sensitive data.
2. Encrypting Data in Transit and at Rest
   Data encryption, both in transit and at rest, is essential in protecting user information from interception and unauthorized access. Open banking APIs should apply advanced encryption protocols, such as TLS (Transport Layer Security), to shield sensitive data. Many institutions are also adopting tokenization, replacing sensitive data with non-sensitive tokens, ensuring an added layer of protection.
3. Rate Limiting and Throttling for API Protection
   Rate limiting controls the frequency of requests to an API, mitigating the risk of brute force attacks and API abuse. This security measure is crucial in preventing overload scenarios and malicious activities, where attackers or aggregators might flood the API with requests. By dynamically setting rate limits, financial institutions can prevent service disruptions and maintain system integrity.
4. Continuous API Discovery and Shadow API Monitoring
   Open banking often requires frequent updates, which can unintentionally lead to the creation of “shadow APIs” that remain undocumented and unmonitored. Employing a continuous API discovery strategy helps organizations map and monitor their APIs, minimizing the risk of exposing sensitive data through these unknown or forgotten APIs.
5. Security Testing and Compliance Monitoring
   Security testing helps ensure compliance with open banking regulations. Automated testing and vulnerability scans, when integrated into an institution’s development pipeline, provide proactive identification of API weaknesses, enhancing security while reducing the risk of data breaches. Institutions should conduct periodic penetration tests and align API practices with standards set by PSD2 (the EU’s Revised Payment Services Directive), the CFPB, and similar regulations globally.

Mitigating Financial Aggregator Abuse

A distinct security challenge in open banking is managing financial aggregator abuse. Financial aggregators are companies that consolidate a consumer’s financial data into a single view for reporting and analysis purposes, such as tax planning or household budgeting. These aggregators used to gather the consumer’s data from various banks and other financial organizations through screen scraping, which is an automated process whereby a bot logs in as the consumer and collects the information from the screen. It worked, but it was error-prone since even small changes to the financial website could cause the bot to fail or return incorrect data. Now these connections are made via APIs, which are documented and repeatable, but they have also become a point of attack for bad actors attempting to commit fraud, identity theft, or steal funds.

Attackers find this consolidated pool of sensitive information extraordinarily valuable, enabling them to launch high-value attacks across institutions. Attackers can leverage aggregators as a backdoor into financial institutions, and aggregator APIs are an obvious target. It’s critical to protect these APIs as compromising one may lead to the compromise of others.

Effective security of these aggregator APIs includes:

• Implementing granular rate limits that detect abnormal patterns from both trusted and untrusted sources.
• Employing anomaly detection tools to identify excessive or suspicious data requests, thereby stopping abuse in real time.
• Ensuring comprehensive user consent and monitoring protocols so that users and institutions maintain visibility into data-sharing activities.

Geographic Perspectives on Open Banking API Security

United States

In the U.S., the CFPB’s recent rule encourages banks and credit unions to adopt APIs for consumer-driven data sharing. However, API security standards remain voluntary, with frameworks like FDX offering guidance. This regulatory environment necessitates that U.S. financial institutions independently implement robust security protocols to prevent data misuse while enabling open data sharing.

Europe

Europe’s PSD2 regulation mandates strict security requirements for all open banking APIs. PSD2’s strong customer authentication (SCA) requirements enforce multi-factor authentication, while its open API mandate requires banks to allow licensed third-party providers to access accounts directly. This regulatory environment has made Europe a leader in secure, standardized open banking APIs, providing a model for other geographic regions.

Asia-Pacific

In the Asia-Pacific region, open banking is still emerging but quickly gaining traction, driven by customer demand for convenience and security. Countries like Australia have introduced initiatives, such as the Consumer Data Right (CDR), which mandates data-sharing standards for financial services. These initiatives provide a foundation for secure data exchange, though API security practices may still vary widely across different regions.

How Cequence Secures Open Banking APIs

As open banking continues to reshape global financial services, Cequence offers a tailored solution to address these API security challenges through a combination of AI-driven analysis, continuous monitoring, and proactive threat detection. With features that enhance visibility and security, Cequence helps institutions mitigate risks associated with shadow APIs, aggregator abuse, and regulatory compliance.

Key capabilities include:

• Anomaly Detection and Threat Intelligence: Using machine learning, Cequence identifies low-and-slow attack patterns, probing activity, and anomalies, ensuring proactive threat detection.
• Automated Mitigation and Throttling Controls: Cequence dynamically adjusts access rates and automatically mitigates suspicious behavior, reducing the risk of abuse without disrupting legitimate use.
• Programmable Pivots: The ability to pivot on key data fields to detect and mitigate malicious behavior in increasingly complex consumer-aggregator-financial organization relationships.
• End-to-End API Security Lifecycle Management: From discovery to decommissioning, Cequence provides continuous oversight, ensuring APIs remain secure throughout their lifecycle from birth to grave and beyond using automated testing, discovery, inventory, compliance, detection of threats to natively mitigating risk without relying on a third party.

By combining these capabilities, Cequence empowers financial institutions to offer secure, compliant open banking experiences across global markets, reinforcing trust and stability in the open banking ecosystem.

Looking Ahead

The evolution of open banking brings a new era of financial inclusivity and innovation, but it also demands sophisticated security measures to protect consumer data and maintain regulatory compliance. As financial institutions adopt open banking, securing APIs becomes a fundamental component in delivering a safe and trusted experience to customers worldwide. Through structured security measures, a thorough understanding of standards like FDX and OFX, and an awareness of global regulatory nuances, institutions can better safeguard their APIs, building resilience against the challenges that accompany open banking.

Further information from Cequence on open banking and financial aggregator abuse:

• Webinar: Mastering the Open Banking API Gold Rush: Expert Tips and Strategies
• Blog: PSD2, the Future of Open Banking, and API Security
• Blog: Navigating the New CFPB Rule on Open Banking: The Details
• Blog: CFPB to Announce Major Open Banking Proposed Rule
• Blog: The Open Banking API Security Imperative
• Blog: Financial Aggregators a Vehicle for Credential Exploitation?

Contact us to learn more or schedule a personalized demo and discuss your business-specific needs.