The Growing Risk of Open APIs in Digital Lending

As digital lending rapidly expands, financial institutions increasingly rely on open APIs to streamline processes such as loan applications and underwriting, aiming to deliver faster and more seamless user experiences. However, without robust security measures, these APIs can become vulnerable entry points for fraud, data harvesting, and other malicious activities. Recent incidents have highlighted how public-facing APIs, when poorly secured, can be exploited for large-scale data abuse—exposing both users and institutions to significant risk.

The Exploit: How Malicious Actors Leverage Open APIs

Consider a case where a lending platform deployed an underwriting API meant to offer instant pre-qualification for loan applicants, lacked basic security controls like authentication, rate limiting, and behavioral monitoring. A malicious actor automated a script to test mobile numbers, and extract partial loan data such as sanctioned amounts, interest rates, and geolocation. Although the data was incomplete, it was sufficient to launch highly targeted phishing campaigns, with fabricated loan approvals or urgent payment demands, eroding consumer trust and increasing risk of financial fraud.

The Challenge: Security Gaps and Regulatory Implications

• Open APIs and Data Exposure: APIs often prioritize usability over security, lacking authentication, authorization, or throttling mechanisms enabling unauthorized access. Weaponization of Partial Financial Data: Even fragmented loan data can be weaponized  to create personalized messages that appear legitimate, making it harder for consumers to detect fraud.
• Regulatory and Compliance Risks: Under RBI guidelines and the upcoming Digital Personal Data Protection (DPDP) Act, financial institutions are obligated to protect customer data cross all interfaces. API security lapses can lead to regulatory penalties, reputational harm, and loss of customer confidence. 

Mitigation Strategies: 

• Authentication & Authorization: Implement strong authentication mechanisms such as OAuth 2.0, API keys, or token-based access control. 
• Rate Limiting & Throttling: Prevent abuse by restricting the number of API requests allowed per IP or user over a specific time period. 
• Behavioral Anomaly Detection: Monitor API traffic for irregular patterns—such as sequential number testing or repeated queries from the same source. Machine learning can help flag and block such anomalies in real time.
• Data Minimization: Avoid exposing more information than necessary. For instance, initial loan eligibility checks should not return detailed personal or financial data. Responses should be lean and context-specific.
• Consumer Awareness & Protection: Educate users about common phishing tactics and how to verify legitimate communications. Proactively issuing alerts and warnings can help mitigate the effectiveness of scams leveraging leaked data.

Open APIs are a cornerstone of innovation in digital lending, but they also introduce new attack surfaces. Financial institutions must recognize that API security is not optional; it is an essential layer of defense in an increasingly interconnected digital ecosystem.

By enforcing strong authentication, monitoring usage patterns, minimizing data exposure, and educating users, lenders can significantly reduce the risk of exploitation. Moreover, a secure API infrastructure ensures compliance with emerging data protection laws and reinforces customer trust—a key differentiator in the competitive financial services landscape.

A proactive approach to API security not only protects sensitive customer data but also safeguards the integrity of digital lending platforms, enabling sustainable and secure innovation in the financial ecosystem.

Naseem Halder
Chief Information Security Officer
Navi