In the last few years open banking has been growing at a quick clip. Under open banking, users request that their bank share their banking information with a so-called third party (check out our Open Banking Glossary for terms). Then, the third party can see the user’s financial history, like bank transactions and average account balance. This will help them determine what kinds of financial products to offer the user.
The easy, fast and entirely online nature of open banking has made it an increasingly popular resource.
Users and companies turn to open banking for everything: from assessing financial history to making account-to-account payments and much more.
If that’s your question, then we have good news for you: the answer is yes, absolutely!
Not only is open banking extremely safe, but in many ways, it is safer than other methods of sharing financial information.
Here are five reasons why….
When it comes to open banking, consent from users is not only important, it is essential. Before any kind of data is viewed, the user must agree to share their information.
Not only do they have to agree, but the user must actually go through an authorization process. The process includes entering their bank account number so the third party can connect with the bank and view their account history.
This puts the whole decision and process of authorization entirely in the hands of the user.
They get the last say on whether they want that information shared.
Remember how we said open banking can actually be safer than other methods of information sharing? Well it’s the truth, and especially when it comes to identity verification.
With traditional methods of ID verification, a user would have to produce physical bank documents. These documents would prove their identity to a company they want to work with.
physical documents can be tampered with. That means there’s a possibility someone could impersonate a user using doctored documents.
Open banking majorly cuts down on that risk.
Instead, the lender or other company can get ID information about a user straight from the bank. They can then check that information against the user applying for a loan (for example) to ensure that the user is who they claim to be. The direct connection to the bank means there’s less of a risk of tampering.
Another reason open banking is so safe?
Your information is never going to be handled by random entities.
That’s because any entity that’s authorized to use open banking is strictly regulated by the European Banking Authority (EBA). Or, if you’re in the UK, the Financial Conduct Authority (FCA).
These government bodies are responsible for developing the strict set of standards and regulations about privacy and data protection in open banking. Not only that, but they maintain regularly-updated registers of every entity that is legally allowed to use open banking.
Check out the EBA’s here and the FCA’s here.
Not sure if you can trust a company with your information?
Look them up on that register! If they’re there, that means they meet the EBA’s strict privacy standards.
Many times a third party will not be able to sort through all of the banking information and make sense of it on their own. That’s when they’ll call in the experts: Account Information Service Providers (AISPs).
AISPs (which are also strictly regulated by the EBA) will sort through the information. They assign labels to transactions and analyze data to determine things like creditworthiness.
Instead of being a bad thing, this is a chance to bring in a little extra data security.
AISPs like Kontomatik will intentionally anonymize all or most of the data they receive from the bank. That way, as they go through the data, the identity of the person behind the account is kept completely confidential.
The final reason open banking is so safe: You can opt out of sharing your information whenever you want.
This is because open banking regulations have been designed with the user and the user’s privacy in mind. If there is ever a point when you’re wary, or when you want to learn a little more, you can stop sharing that data immediately, no questions asked.
Open banking is many things: a tool of convenience, a movement towards a more digital world and a time-saving measure.
As regulations around open banking develop, data security will always be at the forefront of the open banking movement.
For more updates and analysis on open banking, follow Kontomatik on LinkedIn
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