Open banking data security is becoming increasingly important as financial institutions move toward greater digital connectivity and information sharing. Initiatives such as the U.K.’s Open Banking Standard and the European Union’s PSD2 directive are designed to increase competition and give consumers greater control over their financial information, but they also introduce new considerations around privacy and cybersecurity.
As banks increasingly use APIs and collaborate with outside service providers to deliver more personalized digital experiences, protecting customer information will remain essential. Greater connectivity can create opportunities for innovation, but it can also increase the potential impact of a cyberattack affecting a financial institution or one of its technology partners.
The removing of barriers to entry is seen by many as an integral component of having a market driven economy, the Holy Grail for some. While the idea driving the U.K.’s Open Banking Standard and the freer exchange of customer directed information in the EU under the PSD2 directive are examples of lowering barriers to market participation, it is also maintain a steady eye on the preservation of individual privacy and data security.
“The high degree of financial and operational interconnectedness among financial institutions means that a successful cyber attack against a single institution or a key service provider could spread more widely within the financial system.”
Mercator Advisory Group’s observations of the movement to digital banking and the increased adherence to customer-centric strategies are revealing the individualization of banking service delivery will be dependent of wider collaboration among service providers. The leverage of APIs to securely exchange transactional data to provide for the level of personalization banking customers are coming to expect from their other merchant interactions will be critical for FIs to deliver value add services. However, this balancing act will make progress as a measured process rather than a flinging open of the doors that has been envisioned by some alarmists.
The continued evolution of digital banking will require financial institutions to balance greater openness with appropriate safeguards for customer information. APIs and increased collaboration between providers can help banks create more personalized services, but these benefits depend on customers having confidence that their financial data remains protected.
Open banking data security will therefore need to develop alongside efforts to reduce barriers and encourage greater competition. Rather than an unrestricted exchange of financial information, progress is likely to depend on a measured approach that combines innovation, customer control, privacy protections, and strong cybersecurity practices.
Overview by Joseph Walent, Associate Director, Customer Interactions Advisory Service at Mercator Advisory Group
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