Third-Party Risk: How Fintechs Do Vendor Security Assessments and Continuous Monitoring

• by Katie Crawford
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When your fintech company uses a cloud billing service, a payment processor, or a cloud-based CRM, you’re not just trusting software-you’re trusting someone else’s security. And if their systems get breached, your customers’ data is on the line. That’s the reality of third-party risk. In 2024, 61% of all data breaches started with a vendor, not your own team. The average cost? $4.88 million-nearly 15% higher than breaches from inside your company.

Why Vendor Security Assessments Aren’t Optional Anymore

It’s not enough to sign a contract and assume the vendor is secure. Regulatory bodies are cracking down. The SEC now requires public companies to report material cybersecurity incidents within four business days-and that includes breaches from vendors. HIPAA mandates that healthcare fintechs (like claims processors or telehealth platforms) have formal Business Associate Agreements with documented security controls. GDPR, NYDFS 23 NYCRR 500, and other rules force you to prove you’re monitoring your third parties.

The Target breach in 2013 was a wake-up call. Hackers got in through an HVAC vendor’s weak credentials. That vendor didn’t handle customer data-but they had access to Target’s network. Your fintech might not have an HVAC vendor, but you likely have dozens of software providers with API access, file transfers, or user authentication roles. One weak link can collapse your whole security perimeter.

What’s the Difference Between TPRM and Vendor Security Assessments?

People mix up these terms. Here’s the clear split:

• Third-Party Risk Management (TPRM) is the big picture: financial health, operational continuity, geopolitical risks, compliance across 15+ frameworks like GDPR, CCPA, and HIPAA. It asks: Is this vendor going out of business? Are they in a country with unstable data laws? Can they keep running if a server farm goes down?
• Vendor Security Assessment (VSA) is the technical deep dive: encryption standards (AES-256), access controls (least privilege), patching speed, firewall configs, and incident response plans. It asks: Can they stop a ransomware attack? Do they log suspicious logins? Do they test for OWASP Top 10 flaws?

Most companies only do VSAs. That’s a problem. A 2024 Panorays report found 68% of breaches came from non-technical failures-like a vendor going bankrupt, missing compliance deadlines, or failing to delete customer data after contract end. You need both.

The Tools and Frameworks Fintechs Actually Use

You won’t build this from scratch. Industry standards exist-and they’re built into platforms most fintechs use today.

• SIG (Standardized Information Gathering): A 1,800+ question library used by banks and fintechs. It’s thorough but heavy. Smaller vendors often struggle to complete it.
• CAIQ (Cloud Security Alliance): 271 controls focused on cloud providers. If you use AWS, Azure, or Google Cloud vendors, this is your baseline.
• HECVAT: Designed for healthcare fintechs. If you handle PHI, this is your gold standard. 78% of healthcare fintechs use it-only 43% of other industries do.
• NIST SP 800-161: The federal government’s playbook. It maps 185 controls to NIST’s broader security framework. If you work with government clients, this is mandatory.
• ISO/IEC 27036-1:2017: The international standard for supplier security. Used by global fintechs with European or Asian clients.

Platforms like Panorays, SecurityScorecard, and BitSight automate this. They don’t just send questionnaires-they monitor vendors 24/7. These tools scan for things like:

• Expired SSL certificates
• Unpatched vulnerabilities in public-facing apps
• Dark web mentions of vendor credentials
• Changes in DNS or IP reputation

They update risk scores every 24-48 hours. That’s real-time monitoring-not a yearly form you file and forget.

How to Tier Your Vendors (And Save Time)

You don’t assess all vendors the same way. Most fintechs manage 1,200-1,800 third parties. If you treat them all like high-risk, you’ll burn out your team-and your vendors.

Use a 3-tier system:

• High-risk (15-20% of vendors): Those handling sensitive data, payment flows, or core infrastructure. Examples: payment gateways, KYC providers, cloud storage with PII. Require annual on-site audits, penetration tests, and continuous monitoring.
• Medium-risk (30-40%): Marketing tools, HR platforms, non-financial SaaS. Use automated questionnaires (SIG or CAIQ) every 18-24 months. Add continuous monitoring if they have API access.
• Low-risk (40-50%): Office supplies, non-critical SaaS, travel booking. Biennial basic checklist. No continuous monitoring needed.

This cuts assessment time by 60% without increasing risk. A 2023 University of California Health case study showed a 72% reduction in assessment time after implementing tiering-after 18 months of process redesign.

Continuous Monitoring: The Only Way to Stay Ahead

Here’s the hard truth: 92% of fintechs do an initial vendor security assessment during onboarding. Only 37% do continuous monitoring.

That’s like locking your front door but leaving your back window open-and checking it once a year.

A Midwest hospital in 2024 got breached because a vendor’s SSL certificate expired. The questionnaire didn’t catch it. Continuous monitoring would’ve flagged it in hours. SecurityScorecard and BitSight alert you when:

• A vendor’s server starts sending spam
• They’re using outdated libraries (like Log4j)
• They’ve been flagged for credential leaks

AI-powered tools now predict risk based on trends-like if a vendor’s patching speed drops 30% over three months. That’s a red flag before the breach happens.

What Goes Wrong in Real Life

Here are the top three failures we see:

1. Assessment fatigue: Vendors get 14.7 questionnaires a year on average. One fintech client had a vendor who refused to work with them because they had to fill out 8 different forms. Standardizing on SIG or HECVAT cuts this down.
2. Cloud confusion: Many vendors say, “We’re on AWS, so you’re responsible for security.” That’s wrong. Under the shared responsibility model, you’re still accountable for how they access your data. You need to verify their IAM roles, encryption settings, and logging.
3. No deletion policy: Privacy Rights Clearinghouse found most assessments ignore data retention. If a vendor stops working with you, do they delete your customers’ data? If not, you’re still liable.

Where the Industry Is Headed

In 2024, things are changing fast:

• AI-driven risk scoring: 83% of TPRM platforms now use machine learning to predict which vendors are most likely to fail.
• Shared assessment repositories: The Healthcare Vendor Security Alliance lets 120+ hospitals share vendor assessments. That cuts duplicate work by 68%.
• Blockchain attestation: A handful of fintechs are piloting blockchain-based proof that a vendor met security controls-no forms needed.

The market is exploding. The global TPRM space hit $3.84 billion in 2023 and will hit $10.72 billion by 2028. Healthcare leads adoption at 28% of the market, but fintech is catching up fast.

What You Should Do Today

You don’t need to overhaul everything tomorrow. Start here:

1. Make a list of every vendor you use-yes, even the “small” ones.
2. Categorize them: high, medium, low risk.
3. Replace 2-3 manual questionnaires with SIG or CAIQ templates.
4. Pick one high-risk vendor and set up continuous monitoring with a tool like SecurityScorecard (they offer free trials).
5. Ask your legal team: Do our vendor contracts require data deletion upon termination?

The goal isn’t perfection. It’s progress. One less breach. One less $5 million loss. One more customer who trusts you.