Safeguarding Financial Data When Using Third-Party Apps

Why this matters

Third-party financial apps (budgeting tools, payment apps, robo-advisors, tax helpers) connect to accounts and store or transmit sensitive data. That convenience creates attack surfaces: bad actors target APIs, credentials, and user devices; weak app security and overly broad permissions can expose more data than necessary. Financial account compromises lead to unauthorized transfers, tax-related identity theft, and long recovery times for victims (IRS guidance on identity theft explains tax-related risks and recovery steps) (see: https://www.irs.gov/identity-theft-fraud-scams).

In my practice advising clients on digital financial safety, I regularly see two root causes for serious incidents: credential reuse (weak passwords used across services) and unchecked data-sharing permissions. Addressing those two items substantially reduces risk.

How third-party apps typically access your data

• Direct credential entry: you give the app your bank login (less common when apps use secure tokenized connections).
• API or data aggregator access: apps request permission to read transactions or balances via an aggregator (Plaid, Yodlee, etc.).
• File or document upload: you upload tax or statement PDFs.
• OAuth logins: you connect via a provider account (Google, Apple) which grants scoped access.

Each method has different risk characteristics; token-based access and scoped OAuth are preferable to raw credential entry.

Practical, prioritized steps to protect your financial data

1. Pick apps carefully

• Read the privacy policy and security pages: look for encryption in transit (TLS/SSL), encryption at rest, and regular security audits.
• Choose apps with strong reputations and transparent data practices. Free does not guarantee safety—free apps often monetize data (CFPB warns to check privacy and data use) (https://www.consumerfinance.gov/about-us/blog/what-you-should-know-about-financial-apps/).
• Prefer apps that use tokenized connections or OAuth.

1. Use strong, unique passwords and a password manager

• Create long, unique passwords for each app (12+ characters, or use passphrases).
• Use a reputable password manager to generate and store credentials; it removes the temptation to reuse passwords.
• In my experience, moving clients to a password manager cuts credential-reuse risk by more than half within months.

1. Enable two-factor authentication (2FA)

• Use authenticator apps (TOTP) or hardware keys (FIDO2/WebAuthn) when offered; SMS is better than nothing but less secure than authenticators/hardware.
• Require 2FA on banking, investment, and any app that can initiate transfers.

1. Limit permissions and data sharing

• Only grant the minimum permissions necessary for the app to function. If the app asks for permission to “read and modify” when it only needs “read” access, deny or choose another provider.
• Revoke access when you stop using an app—check account settings or the bank’s connected apps dashboard.

1. Keep software and devices updated

• Enable automatic app and OS updates to patch security vulnerabilities. Outdated apps and operating systems are common attack vectors.
• Use mobile device management features (screen lock, remote wipe) and keep backups.

1. Encrypt and secure your connection

• Avoid using public Wi‑Fi for sensitive transactions unless you use a trusted VPN. For details see our guide on protecting your financial information on public Wi‑Fi: protecting your financial information on public Wi‑Fi.
• Verify app communications use HTTPS and check app permissions for background data access.

1. Monitor accounts and set alerts

• Turn on account alerts for large transactions, new payees, and login attempts. Review statements weekly if possible.
• Use credit monitoring or freezes if you’re concerned about identity theft. Our guide on protecting against identity theft explains response steps and tools: protecting against identity theft and financial fraud.

1. Be skeptical of unsolicited requests

• Never provide credentials, verification codes, or account numbers in response to an unsolicited email, text, or call. Phishing and social engineering remain the leading cause of account takeovers.
• Verify app-origin messages by visiting the official site or calling the company using a number from its official website.

How to evaluate an app’s security (quick checklist)

• Encryption in transit (TLS/SSL) and at rest: explicitly stated.
• Authentication options: supports 2FA and hardware keys.
• Data minimization: collects only required fields.
• Clear deletion policy: you can delete your data and revoke tokens.
• Third-party audits or SOC reports: available on request.

If an app cannot answer these questions or gives vague answers, treat it as higher-risk.

Special considerations for small businesses and frequent money-movers

• Use separate business accounts and credentials; do not connect personal banking to business apps without clear separation.
• Apply least-privilege access for employees: single sign-on (SSO), role-based access control, and regular access reviews.
• Consider cyber insurance or fraud liability coverage for payment processors.

What to do if you suspect a compromise

1. Change passwords immediately for affected accounts and any reused elsewhere.
2. Revoke third-party app access tokens from your bank/financial institution dashboard.
3. Enable or strengthen 2FA on all accounts.
4. Contact your bank or card issuer to freeze or monitor accounts for unauthorized transactions.
5. File reports: FTC IdentityTheft.gov for non-tax identity theft (https://www.identitytheft.gov/) and the IRS for tax-related identity theft (https://www.irs.gov/identity-theft-fraud-scams). Follow reporting steps promptly—earlier action shortens recovery time.
6. Keep records of communications and fraudulent transactions for claims and dispute processes.

Common mistakes I see and how to avoid them

• Assuming default settings are safe: always review privacy and permission settings after installing an app.
• Over-sharing screenshots or statements in community forums: redact account numbers and personal identifiers.
• Ignoring small charges: attackers often test accounts with small transactions before larger fraud; set alerts for even small debits.

Tools and controls that add protection

• Hardware security keys (YubiKey, Titan) for high-value accounts.
• Password managers (commercial choices vary—pick a reputable vendor with transparent security practices).
• Mobile security features: biometric locks, app-based VPN, and play-store/app-store verification.
• Regular security audits for businesses and use of trusted payment processors.

Additional resources and further reading

• Consumer Financial Protection Bureau: guidance on financial apps and data privacy (https://www.consumerfinance.gov).
• Federal Trade Commission (FTC): identity theft resources (https://www.identitytheft.gov).
• IRS: identity theft and tax fraud information (https://www.irs.gov/identity-theft-fraud-scams).

For technical readers, our companion article on cybersecurity best practices covers device-level controls, password hygiene, and monitoring in more depth: cybersecurity best practices for protecting financial accounts.

Quick action checklist (copy and keep)

• Use a password manager and unique passwords.
• Enable 2FA (authenticator/hardware key preferred).
• Grant minimal permissions; revoke unused app access.
• Update apps and OS automatically.
• Avoid public Wi‑Fi or use a trusted VPN.
• Monitor accounts and set transaction alerts.
• Know where to report: FTC and IRS links above.

Professional disclaimer: This article is educational and not legal, tax, or personalized cybersecurity advice. For complex incidents or significant losses, consult a licensed cybersecurity professional, your bank, or an attorney.

Author note: Over 15 years advising clients on finance and digital security, I’ve seen these steps prevent most common compromises. Implementing them consistently—especially unique passwords and 2FA—will materially reduce your risk.