From digital banking to Buy Now, Pay Later (BNPL), the financial services landscape has fundamentally changed as a result of technology-driven innovation—and it will continue to evolve. Open banking is revolutionizing consumer banking and redefining it as a customer-centric ecosystem for banks and third-party providers alike to put the control of financial data back into the hands of the consumer.

Driven by the European Union adoption of the revised Directive on Payment Services (PSD2) in 2018, open banking was designed to support three important principles: Better consumer protectionSecure payment schemes with strong customer authenticationInnovative services and products accessed through the open banking concept Open banking offers consumers control of their data, which in turn gives them a clearer view of their finances. It allows for quick, easy, and direct payments, and for consumers to shop around different financial services. It also enables banks to expand offerings by opening application programming interfaces (APIs) and connecting with other service providers and fintechs.

It allows third-party providers to launch new products and services in an agile environment, gain market share from larger banks, collaborate between banks, and easily integrate into other platforms with added levels of security. There are obvious benefits to the customer-centric concept of open banking, but because the U. S.

has thousands of banks, it’s hard to regulate them to these specific standards. That said, the U. S.

is taking a market-led approach and supporting best practices that go beyond open banking—to open finance (including mortgage, insurance, credit risk, etc. )—to better serve today’s customers. How Security Plays a Role in the Widespread Adoption of Open Banking Open banking allows banks to share customer data with third-party providers via APIs through a unified dashboard view of all interconnected banking services.

By consolidating customer account and payment information across multiple banks, it enables users to make quick, secure payments and access financial services directly between service providers. This process is done with customer consent and should be highly secured with verification and authentication steps. The challenge is that these security processes haven’t been ironed out and are a major concern for consumers.

In fact, 47% of U. S. consumers are worried about losing control of financial data in an open banking framework.

Right now, there are different platforms associated with different services. There’s one platform for banking and another for insurance, but there’s no interoperability between these platforms. This leads to a higher risk of data loss and compromise because there’s no way to associate consumers across different platforms.

In order for it to be more widely adopted, banks and fintechs need to strengthen their identity management practices to better manage end-users’ identities and data across every platform.    How to Make Identity Security Top of Mind Creating an identity management framework—that is unified, customizable, and integrated—is key. By making this the foundation of open banking, banks and fintechs have access to a 360-degree view of each customer to unify and secure customer data.

A strong identity management platform allows for more control over customer data because it provides strong customer authentication and effectively secure APIs. With open banking, consent is important. Consumers have to opt-in and choose the data that third parties are allowed to access and for how long, and identity management allows this to happen.

Open Banking Gives Control Back to the Customer Before open banking, banking was transaction-centric, benefitting banks and merchants primarily, which forced customers to manage different relationships. The open banking concept introduces a unified dashboard view of all interconnected financial services to give control back to the consumer. Disruption is in our favor.

But it’s only when identity security is interwoven throughout the concept that consumers will receive the customer experience they need to adopt open banking principles. This transition will lead to open finance, which could eventually lead to an open economy.

By Karen Yetter
Sep 29, 2022 00:00
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