Vendor Due Diligence Checklist for Fintechs
Note: This article is the second in a 4-part series designed to help fintech companies forge lasting relationships with financial institutions and build trust with consumers.
Vendor due diligence should be a vital component of every Fintech’s risk management strategy. Potential banking partners are looking for consistent monitoring, well-documented procedures, and sound vendor risk assessment frameworks. In response, we created a vendor due diligence checklist that spells out how to deliver on those requirements.
The 5-Step Due Diligence Checklist for Fintechs
1.) Maintain visibility over high-leverage vendors
Not all third-party vendors need to be monitored every year. It’s important to keep a list of all vendors in a central place; this will help you identify the moderate and high-risk vendors that deserve your constant attention. Third parties that deal with sensitive information such as customer data and social security numbers should be monitored more closely. The same goes for any software system that helps move money, such as wire transfers.
2.) Research your vendor’s data practices
Fintech risk leaders should understand how their vendors collect, store, and use data. Consider your third-party providers’ data privacy policies, security measures, and incident response plans.
- Which countries does the vendor operate within – and which data laws are applicable?
- Does the fine print show the vendor’s plan to sell customer data?
- Will they use customer data to train AI models?
Even if intentions aren’t nefarious, it’s important to understand what’s happening to member data beyond the walls of your company.
From Risk to Reward: A Due Diligence Playbook for Fintech Trust 
3.) Don’t forget “fourth-party” connections
Another aspect of vendor due diligence is understanding your vendor’s vendors. How would a potential breach or disruption within their supply chain impact your Fintech – and in turn, your banking partners?
In 2023, a ransomware gang hacked the file transfer tool MOVEit. The ripple effects were felt across nearly every industry, with organizations ranging from financial services firms to British Airways to the New York City public school system. MOVEit took the brunt of the scrutiny, but there was also a class action lawsuit against IBM, which ran many of the servers that MOVEit used. Long story short: it’s not just your vendors that present risk.
4.) Review vendor’s SOC reports
If you’re overwhelmed with the idea of maintaining visibility over a slew of vendors, have no fear! Security Organization Controls (SOC) reports provide independent assessments of a service organization’s security and processes. These SOC reports can provide an efficient path to assessing risk across your spectrum of third-party relationships.
5.) Document your vendor onboarding process
We recommend establishing a robust vendor onboarding process — one that includes risk assessments, contract negotiations, and continuous monitoring. But it’s not enough to simply follow this process; risk management teams should also document the onboarding process to show potential partners that they’re following through on their promises.
Next Steps:
The WolfPAC Fintech platform offers a variety of tools to help you develop a comprehensive Third-Party Risk Management program to enhance your visibility, increase efficiency, and reduce vendor risk. Do you want to learn more about our offering, or ask our team of Fintech experts questions about our vendor due diligence checklist? Contact us today!