Five ways to manage financial APIs’ Risks

When financial institutions see the potential to scale the exposure of services such as creditworthiness and fraud prevention, they often begin to leverage API data.

Financial API providers expose their resources and assets to provide financial services providers with meaningful insights. This advanced technology allows financial institutions the ability to provide quick loans and create value for customers. However, APIs come with a number of risks, including security, data privacy and brand reputation.

These concerns are serious, but providers who believe that their API could be of benefit to financial institutions should think about how to mitigate them.

Common risks associated with open APIs

Data on low-quality

Data quality is an important aspect of making intelligent lending decisions. Financial institutions need to ensure that data integrity is checked after it has been assessed.

Unauthorized Transactions

Fraudulent activities may be committed against customer accounts of financial institutions.

Misuse of customer/borrower data

APIs can expose customer data to the public or misuse it if the customer consents or if the API provider uses the data in an illegal or unapproved manner.

Lender’s Reputation

If you purchase an API from a white-label provider and the partner behaves inappropriately, it could spell doom for your brand and business.

Top Features of an API Contract

Suspension or Withdrawal

Contracts should clearly state the rights of API providers and financial institutions.

Customer Consent

Financial institutions can provide information about how an API provider must confirm customers consent to access their data and initiate payments.

Data Protection

It is important to clearly state how API providers will handle customer data, and how they will handle data from third parties.

Data Security

The contract should outline how the API provider and financial institution will manage security issues.

Considerations Technical

The agreement should outline the obligations and working methods of the API provider, any special norms that a financial institution should use, and establish service-level performance standards.

Dispute resolution

The contract should clearly state how disputes will be settled.

An API contract should also describe how a financial institution can optimally use the API features to create and deliver innovative products and services, while protecting customers’ data.

Financial institutions should use the above steps to create a smart strategy. This strategy will determine what digital data they want to use, how they will access it, and how they will analyze it later. Financial institutions can manage their financial API risks by doing good research and planning well.