What are the risks of open banking?
Open banking is meant to disrupt the finance industry and reduce banking monopolies, encouraging customers to look at their banking options and switch to a different provider if they find a good fit. It can also help customers streamline their payment procedures.
It began when UK regulators began telling banks and credit card companies to share customer data with other companies if their customers consented. The companies will also be able to carry out payments on a customers’ behalf.
Open Banking Explained
Open banking means banks will share your financial data like spending, payment information, and bank accounts and credit cards you use with providers offering budgeting apps or other banks if the customer gives permission. In the US, third-party apps like Mint and CreditKarma have had some access to customer financial data for years. These apps can help to analyze financial transactions and offer suggestions based on their analysis.
Data that is accessed from these apps can help you not only have a better understanding of your spending (apps can categorize purchases), but it also can offer better products at different banks – based on your income, spending, account history, credit, etc. you might qualify for a better rate at a different bank or qualify for a competitors’ credit card.
While this information sharing means that customers have more options, better choices, and more freedom to understand and customize their personal financial landscape, some people are rightly asking – is this information and data sharing safe?
Open Banking Security Best Practices
One important thing to remember about open banking is that customer consent it key. No account information can be shared without user permission. Additionally, the technology that is used to move the data from a financial institution to other sites and applications is safe and trusted. Wired Magazine says, “APIs – the technology used to move the data – are trusted and the law requires account providers to use strong customer authentication, a procedure which allows the payment service provider to verify the identity of both the user and the service.” This means that both the technology facilitating the transfer, as well as the vendors and parties with access to the information, will be verified and legitimate.
So, what are the risks?
Most security risks come from scammers in the form of outside sources and 3rd party vendors asking for login information from customers who think they need to share it again, when the only party that a consumer needs to share login information with is the bank. Therefore, education about open banking will be important to protect consumers and businesses alike.
Open banking information sharing is relatively safe process that ultimately can offer customers several benefits, including better access to lending options, streamlined payment options, and better money management. If your business is looking to gain access to customer information, you’ll need to make sure that you’re first verified and then that your own data security protocol is solid to avoid any kind of post-transfer data leaks. In short, new data will need to be handled exactly how you handle sensitive information or customer data now – carefully.
