What are the Major Security and Privacy Challenges in Open Banking?

Open banking is crucial in developing and delivering new revenue-generating services that today’s customers require. Financial institutions (FIs) around the world are increasingly making Application Programming Interfaces (APIs) available to a growing number of Fintechs and other third-party technology providers, such as Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs), as part of open banking initiatives.

To secure their businesses, protect their customer relationships, and consumer privacy, financial institutions should indeed re-evaluate their data privacy and security practices in tandem with their open banking initiatives.

In this article, we deep dive into key security and privacy challenges around open banking and the proactive steps that every financial institution should take to intensify and strengthen its open banking initiatives.

1) Adherence to Regulations and Standards:

It is essential that each participant in the FI ecosystem follows the same set of guidelines and adopts a standard that can be relied upon by all. Access to open banking APIs is only available to apps that have undergone an independent audit and proven that their processes and security controls meet the FCA’s standards.

They must do this regularly after the initial audit to maintain authorization. Simultaneously, open banking regulations, such as the European PSD2, and local and regional protection laws, such as the GDPR, establish equal rules for all and enforce a high level of security.

Adherence to compliance and regulations not only helps them provide security but also frees them up to focus on innovation can be aided by an industry-wide proactive defense strategy based on the evaluation of FIs (including banks, Fintechs, regulators, and government agencies), security controls, and compiled threat intelligence data.

2) Giving Control to the Customers:

Customers should be fully conscious of how their data is being used, how they can handle it, how it is being stored, and how the business is regulated, according to open banking security. The rules have already been established. Financial services, such as FinTech apps, have recently become more proactive in informing customers about their data and encouraging them to interact with it. Promoting data accessibility and transparency builds trust and ensures users have control.

3) Know Your Customer:

One of the most difficult challenges that open banking faces are detecting suspicious activities in transaction monitoring that indicate cyber crimes or money laundering. KYC (Know Your Customer) is a process that every bank must go through with every customer, both initially and regularly, to identify and verify their identity.

4) Evolution of Advanced Authentication and Authorization methods:

For the protection of APIs, content filtering is crucial. Financial institutions require a comprehensive vulnerability management strategy that considers people, processes, and technology. As well as frequent scanning measures to identify real-time or potential threats, risks and the ability to address them in near real-time.

Access control is the main justification for using API gateways, though. With the advent of biometrics technology and multi-factor authentication (MFA), there is a significant evolution in recent times. In addition to a strong password, which is also crucial, multi-factor authentication mandates an additional step for users to log into their accounts. These may involve asking the account holder one more question, sending a text message to their phone, or using a biometric scan like a fingerprint to unlock the account. According to studies, MFAs successfully thwart 99.9% of all potential hacks.

5) Strong Data Encryption Techniques:

Encryption is the stepping stone in ensuring data security. Data sharing in Financial Institutions should be permission-based or risk-based, with proper audit trails based on regulations and risk management standards. FIs can improve their security while running their operations more smoothly by using identity and authorization validation, Know-Your-Customer (KYC) capabilities, and fraud detection techniques.

While API management, security, and integration are the unsung heroes of open API implementations, speed and compatibility with bank infrastructure are critical to success. Banks can simplify processes for their customers and gain more control over security by implementing risk-based and permission-based security. Furthermore, it will assist banks in streamlining their security infrastructure and making it more efficient and customer-centric.

6) IT Security Governance:

Cybersecurity is more than just robust. It constantly looks for threats, weak spots, scans for vulnerabilities, and flags problems before they even arise. This process is improved by information sharing between businesses and cooperative intelligence within the banking environment.

FIs can increase the security of their operations by taking stringent measures like implementing strong customer authentication (SCA) through multi factor authentication (MFA), implementing risk-based MFA throughout the entire infrastructure, and enabling minimal role-based access.

7) Establish a secure digital platform:

While implementing open banking, it is required to have a secure digital platform as banks must transfer and consume certain data with third-party providers. A secure digital banking platform serves as a central location for connecting, storing, working with, and securing your open banking data.

All of this is made possible by microservices such as security solutions, which can be easily built on the digital platform and are already integrated into the Macro Global Digital Banking Suite, Calculus.

8) Regular Control and monitoring:

Once everything is in place, it is time to monitor and control. At this point, banks will typically set up alerts for access, users, transactions, locations, amounts, and other factors. If there are any anomalies, the bank will be notified.

To overcome this above challenges, Ardent Privacy's solution helps open banking in discovering, identifying, and mapping data from Personal Identifiable Information (PII) to sensitive data assets.It also reduces their unwanted or excess data footprint to become compliant and resilient in case of a “significant security and privacy challenges”. It also provides discovery capabilities essential to meet privacy requirements for compliance (CCPA/CPRA, Virginia CDPA, Colorado Privacy act, Utah Consumer Privacy Act, Connecticut Data Privacy Act), such as data inventory, identification, data subject access requests (DSAR) and data minimization. Open banks collect and retain vast amounts of personal data which represents a substantial liability for privacy compliance. By utilizing the Ardent Privacy solution, Open banks can reduce risk and liability by limiting excess storage of personal data. Data minimization reduces the costs associated with securing data and storage. It is vital for financial institutes to know what data they have and only keep what they need to do business.

To learn more about how Ardent Privacy can help you comply with the major security and privacy challenges in open banking, reach out to schedule a demo with one of our technical experts.

About Ardent Privacy:

Ardent Privacy is an "Enterprise Data Privacy Technology" solutions provider based in the Maryland/DC region of the United States and Pune, India. Ardent harnesses the power of AI to enable companies with data discovery and automated compliance with various global regulations by taking a data-driven approach. Ardent Privacy's solution utilizes machine learning and artificial intelligence to identify, inventory, map, minimize, and securely delete data in enterprises to reduce legal and financial liability.