Five approaches to secure open banking

Open banking offers consumers access to new competitive services, but building and maintaining a secure ecosystem is vital to its growth. 

Open banking is going to mean big things for the financial sector, but there is still a lack of clarity around exactly what it will mean for individual participants in the ecosystem.

Banks may not know why they should be opening up their field to new competitors. Businesses and SMEs may not want to spend time and money on new technologies or strategies. And customers may feel uncomfortable about sharing their data with banks, when the benefits of doing so remain unclear.

And all the while, a shifting data-privacy regulation environment may make companies unwilling to invest in programs that make heavy reliance on consumer data, when the way they are allowed to access that data is subject to constant change.

Therefore, it’s unsurprising that in an age when even the world’s largest tech businesses are losing the public’s trust to handle their data safely, customers are suspicious of handing over access. Research on consumer sentiment toward open banking found that 40% of consumers were positive, while 48% listed data and cybersecurity concerns as their reasons for negative opinions.

The financial community must avoid aggravating these concerns when it comes to educating customers. The benefits of open banking are real ― in particular the benefits around making the banking system safer, more secure and more valuable to all parties. There are five key ways open banking helps improve the entire banking system’s security:

1. Collaboration and standardization mean stakeholders are stronger together

Securing open banking is mutually beneficial for the entire digital banking ecosystem. Open APIs (application programming interfaces) and VPNs (virtual private networks) are driving collaboration and communication between companies ― even competitors ― to create a secure ecosystem for the end consumer, whether that is an ordinary depositor or a business.

This collaboration not only takes place between banks and their FinTech partners, but also between regulators and government agencies. Communication between a range of parties from across the ecosystem helps to develop strong guidelines and best practices.

Collaboration also increases standardization ― so everyone plays by the same rules, making it easier for different parties to work together. Developing shared services like KYC (know your customer) standards or regulatory compliance tools that can be trusted by all parties provides security. At the same time, it frees company resources from noncompetitive activities, allowing them to focus on innovation and consumer-facing offerings.

2. Transparency and encryption put customers in control

One of the key strengths of open banking’s security is, as the name suggests, its openness. Offering consumers greater control of their data allows them a deeper understanding of how it is being used.

This means that transparency will be paramount for service providers to build trust with consumers. For new brands and young FinTech players in the market, it’s a regulatory requirement to inform customers ― whether they are individuals or businesses ― about what their data is being used for, how they can control it, how it’s stored or how the company is audited and regulated.

It might also mean service providers become more proactive in promoting customer engagement with this data, and selling to customers on the value of increased transparency. Communicating the value of openness will be vital in making consumers feel comfortable sharing their data.

The reverse of this transparency, however, is the need for privacy and the protection of user data as it’s being shared. While banks are often perceived to be the custodians of data, ultimately customers must be in control of how their data is shared. Encryption technology is important here in making sure sensitive information is protected from cybercriminals when it’s in transmission or storage.

The whole point of open banking is to give customers control over their data, which means they are free to opt out of these platforms at any time: something that should also incentivize banks to maintain strong data protection controls.