As a result of the extended period of socioeconomic uncertainty caused by coronavirus, interest in open banking is growing. Customers want to have greater management and oversight of their finances, and financial institutions see open banking and PSD2 as a way to facilitate that.
With greater collaboration and data sharing between traditional banks and fintechs, there’s a lot of opportunity to deliver a more personalized customer experience. The concern around open banking APIs, however, is how much it could compromise data security.
“Security is a hot topic, and everybody hears the news reports of fraudsters, hackers and ransomware. These threats seem to only increase, but banks respond accordingly by incorporating security in all our products, applications and infrastructure,” says Martijn Bot, IT security wizard for CISO Technology & Engineering at ABN AMRO.
The advantages of open banking
One of the benefits of open banking for traditional banks is the new role it offers them in the ever evolving future of finance. With so many young fintechs offering user-friendly apps and new customer-centric services, traditional banks need to speed up their digital transformation, or risk becoming obsolete.
Open banking allows banks to broaden their business model and become a service provider, rather than an institution (with physical branches that people rarely visit anymore). Providing centralized, real-time services with better accessibility and flexibility improves the customer experience, while also meaning reduced operational costs for the business.
Banks can also collaborate with third-party providers (TPPs), from fintechs to account and technical service providers, all of which can help them develop their financial innovation and customer offering. Bot explained that deciding who ABN AMRO partners with takes careful consideration, “We request audit reports on any fintech before starting to do business with them and check if they meet security requirements,” he tells us, to make sure customer data shared is kept safe.
Increased security vulnerabilities from sharing data
One of the main concerns customers have with open banking is how secure their data is. Working with TPPs and the sharing of data increases the risk of attack, and data leaking into the wrong hands. Customer’s transactional data holds a lot of value and with that information, fraud can become a lot more sophisticated and harder to detect.
“We see increasing risks of ransomware and are worried about state actors interested in destabilizing the financial world by attacking its core infrastructure, including our banks,” says Bot.
There is also concern that sharing data with smaller and potentially less secure fintechs might leave customer data more vulnerable to hackers. In order to keep things as safe as possible and put customers at ease, Bot tells us:
We share as little data as possible in accordance with the need-to-know principle. Where needed, we apply encryption on all customer data shared between banks and fintechs.
Address vulnerabilities and reassure your customers
There are many ways banks can strengthen their cybersecurity tactics and reassure customers that their data will be secure in the open banking future. Implementing machine learning processes is one way to analyze suspicious behavior and detect fraud or hacking attempts early on.
Multi-factor authentication additionally adds several layers of protection and strong, state-of-the-art encryption algorithms can be used.
Customers’ concerns around security are driven from frequent stories in the media about hackers and the shortcomings of data privacy, but it’s also perpetuated by a general lack of digital literacy. “Data privacy is a very important topic for us and we do everything we can to protect our customers’ data. We have a dedicated security department of 450 employees that work day and night to protect the data of our customers as well as our own,” Bot tells us.
“Our Privacy Office also makes sure we provide transparency to our customers on data sharing,” he continues. It’s clear that greater transparency and communication about what banks are doing to protect their customers’ data is essential.
The open banking future
With good cybersecurity management and multiple layers of protection, the future of open banking can be a safe and secure one. Maintaining communication and transparency with customers will put them at ease and help them put their trust and loyalty in your bank. And with all parties protected and confident, everyone can reap the benefits of open banking.