Open banking is the next step that the world of banking has embraced in order to progress. Due to the decisions made by EU regulators, it seems that the worldwide stage is set for open banking to not only evolve but revolutionize the whole banking sector.
For now, however, the concept is only in effect throughout the EEA as well as the United Kingdom along with a few other countries, spread out across the world.
The biggest concern for the public and the legislators is the security and integrity of data and personal information.
Here, we will focus on open banking data – what is it and how regulators and developers keep it safe!
Open Banking Data – a Short Guide
Open banking is all about having the infrastructure to share personal banking data and make financial transactions securely. Before open banking (PSD2), banks had a lot of information about the customer that could’ve been used for the benefit of the market and the customer but they were very reluctant to share it. As a result, the European banking market was stagnating and a lot of opportunities were being missed.
In order to encourage progress, EU legislators made it mandatory for banks to implement sufficient infrastructure (dedicated APIs) so that authorized service providers could access the relevant financial information of a user with their consent.
In return for the access, these third-party providers (shortened as TPPs) could provide useful services. These could include payment processing, spending tracking, verification, and much more.
The data that open banking providers can gather is (with your consent):
- Your name & surname
- Your employer
- Your account number (IBAN) & transaction history up to 24 months
- Statements on savings & other funds in your account
Open banking data does not involve any passwords or other sensitive personal info.
Benefits of Open Banking Data Sharing & Security
Most people are always concerned regarding the security of their personal data. That’s especially relevant when we focus on banking and financials.
With data theft and cybercrime on the rise, it’s no surprise that there are members of the public who lack confidence in the security and protection of their data.
These concerns are addressed via very strict regulation of the PSD2 directive and careful consideration of who gets a license to handle that data. Only a licensed and authorized service provider is able to gather and use data from the financial institution (bank).
In addition, there are surplus security measures like SCA (Strong Customer Authentication) almost entirely negating the risk of transaction fraud.
SCA is a protective measure that engulfs three different authentication factors. By authenticating with any 2 out of 3 factors, users can be identified and the service can be provided.
The basis for the effectiveness of the SCA is that the three factors are not entirely interlinked. This means that compromising one would not be enough as it does not compromise others.
As for the benefits, there are many that could be named.
- Users will get access to better and more personalized financial services. That’s possible because more service providers can come into the market and more competition results in a wider spectrum of services and products.
- More insights and better financial advice due to wide spectrum, real-time analytics of your transactions and budget
- Quicker verification for services
- Automated payment initiation
So, open banking data refers to the information that, with the consent of the user, can be accessed by authorized third-party providers.
This data consists of financially relevant information that could be used to offer you better services or, with your consent, initiate payments. It’s protected by very strict directives and laws, making it difficult for cybercriminals to commit crimes and tamper with and/or steal your data.